The year 2019 witnessed a mix of some predictable events—such as Organization of Petroleum Exporting Countries (OPEC) and Russia extending their cooperation pact, but a few unpredictable i.e. attacks on Saudi oil facilities and ships carrying oil. Many of the geopolitical issues lingering on in year 2020 could take unpredictable twists. Still, governments and corporate sector in oil consuming countries have to plan and remain vigilant to minimize the intensity of shocks. Some of these are:
US shale production
Keeping in view the declining number of active rig counts, it may be said that US shale growth is slowing down, but analysts and organizations still expect oil supply from the United States to continue to rise in 2020. Growth may be slower, due to reduced capex from drillers, but US will still be the main contributor to non-OPEC supply growth next year.
Rig count will remain stable
Despite the fact that the US oil and rig count declined by more than 250 during the year 2019 as compared to the same period last year, the number of active oil rigs last week saw an increase of 18 rigs—the first double-digit growth since the beginning of April.
US oil and LNG exports
Exports of US oil and liquefied natural gas (LNG) are expected to grow with the increase in infrastructure capacity in 2020. The US exported more crude oil and petroleum products than it imported in September 2019—the first month in which America was a net petroleum exporter since monthly records began in 1973. Total US crude oil and petroleum net exports are expected to average 570,000 bpd in 2020 as compared to average net imports of 490,000 bpd in 2019.
Oil and gas prices
Rising production from non-OPEC nations not part of the OPEC+ deal, driven by the US, Brazil and Norway, is expected to keep a lid on oil prices, while OPEC+ cuts and an expected pick-up in global economic and oil demand growth will keep a floor under prices.
Sudden outages
Due to the growing non-OPEC supply, unexpected and short-lived outages are likely to have a smaller impact on oil prices than they would have on markets five or ten years ago. Case in point—the mid-September attacks on critical Saudi infrastructure sent oil prices soaring—with WTI Crude touching a five-month high of US$62.90 a barrel—but just for one day, as slowing demand growth and a protracted trade war weighed on prices.
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Bankruptcies in US shale segment
The number of bankruptcies and companies seeking protection from creditors is expected to rise in 2020, a continuation of the trend from 2019. It was estimated at end-September 2019 that the US oil and gas industry had 33 filings year to date in September, more than the number of filings in each of 2017 and 2018, at 24 and 28 filings, respectively. With reduced capital availability in equity and debt markets, more of the smaller companies could struggle through the next year.
Oil and gas mergers and acquisitions
A growing number of distressed US oil and gas firms and few funding options could mean that the ‘smaller guys’ could be acquired by bigger shale players or the smaller guys could team up to scale operations and cut costs. Signs of consolidation in the US shale have already started to emerge, and the wave is expected to continue in 2020. In the quarters ahead, analysts expect to see more companies merging to create scale, companies continuing to focus on generating positive cash flows and shareholder value, while struggling companies will become more amenable to being acquired or seeking restructuring through bankruptcy.
Sino-US trade negotiations
Oil prices hit a three-month high in 13th December 219 amid growing optimism of a phase-one trade deal. In the days following the announcement that a phase-one deal had been reached, China removed six chemicals and oil derivatives from its list of tariffed US imports.
Opec plus cooperation
Another key factor to watch is what OPEC and its Russia-led non-OPEC partners will do after March 2020, when the current agreement for deeper cuts expires. The next move by the cartel and its allies will largely depend on how oil demand growth will fare in the typically low-demand growth season in Q1. The move will also depend on how much oil OPEC and friends will have managed to withhold from the market compared to plans—that is, whether all members will have fallen in line and stopped cheating.
Unforeseen supply outages
Oil market participants will continue to monitor developments in other oil producing/exporting countries that include Libya and Iraq, which could suddenly tighten the market more than anyone had intended to. It is also to be seen the fate of another OPEC member country, Iran.