US tight oil and the global oil market

The dramatic 2 million b/d drop in US production during H1 2020 helped the global market begin its recovery from oversupply.

Demand has rebounded from its low in April and other global supply sources have been declining since early 2020. Brent has risen from the low teens in April to as high as US$45 per barrel in early September, in part because of the quick response in US supply to low prices. OPEC and its non-OPEC partners added to curtailed supply, helping to further rebalance supply and demand.

But what if oil prices do not recover any further than US$45 per barrel for several years? Until 2030?

The impact would be dramatic for the global oil market. Currently, tight oil meets around 10% of global demand. Already the outlook for US Lower 48, with its downward revisions made this spring, points to a significantly tighter supply and demand balance this decade. Yet without that more subdued growth from the US, non-OPEC production
would trend down in a year or two.

Other than the US, only a handful of non-OPEC countries show marked increases in production this decade: Brazil, Guyana, Canada and Russia lead the way. These are needed to offset the declines in mature producers such as China, the North Sea (mainly the UK), Indonesia, Colombia and Mexico.

This article is an extract from the report, "how 2020 dealt tight oil another blow". Fill in the form on this page to get your copy. 

The chart illustrates the degree to which the US tight oil recovery depends on stronger oil prices than US$45-$50 per barrel. With no growth from the US Lower 48, total non-OPEC supply would not increase this decade. The shift to OPEC-reliance would occur swiftly in the next few years, with those currently holding output back, such as Saudi Arabia, needing to increase their production.

Higher output from those OPEC countries presently hobbled, such as Iran and Venezuela, would be needed and the global oil market would be at greater risk of supply outages or higher prices as reliance on OPEC nations rises.