Oil Market’s Latest Drag Is a Flood of Crude From the Americas
For the first time in at least two years, the Americas will be the world’s biggest driver of oil production growth, while OPEC cuts back.
For the first time in at least two years, the Americas will be the world’s biggest driver of oil production growth, while OPEC cuts back.
Western hemisphere producers will add more than 1.6 million barrels a day of new supply this year, shifting the balance of growth away from the cartel that has, until this year, led global production gains, according to the Energy Information Administration. And that growth won’t just come from US shale producers, who have long vied with OPEC for market share, but from fields across South America and even Canada that can’t be easily turned off when prices slide.
Large Production Increases Will Come From the Americas
That new production will almost completely offset the output cuts OPEC — and even ally Russia — are undertaking from May as they seek to shore up global oil prices.
“The Western Hemisphere is the secure supply source the world needs in the medium term to keep oil prices from shooting through the roof,” said Schreiner Parker, the head of Latin America for Rystad Energy. “Brazil, Mexico, Guyana, Argentina and even Venezuela will see production increases this year that will help shore up supply in the face of continued OPEC cuts.”
The growth will continue into 2024 when Western hemisphere producers will add another 1 million barrels a day of crude supply, according to the EIA.
To be sure, OPEC’s lack of growth is deliberate and doesn’t mean the cartel will wield any less power. But new production from the Americas will trigger other shifts in the global market.
Projected oil production increase, 2022–2024
Most of the growth in the region will be in oils of light and medium density, which could raise the price of heavy crudes that many refiners are optimized to process, according to Antoine Halff, a former chief oil analyst at the International Energy Agency now with the Center on Global Energy Policy at Columbia University. And because around 20% of the new supply will come from offshore projects that pump around the clock, a regional supply glut is a real possibility if oil demand doesn’t pick up dramatically later this year.
The buildout, in other words, will be “impervious to economics and politics,” said Rystad’s Parker.
United States
The Permian basin alone will add the equivalent of Iran’s total output through 2030 and will grow more than any other region this year and next, according to the EIA and International Energy Agency. But that growth in light, sweet oil will be measured, as shale producers focus more on maintaining steady revenues than pumping more oil.
“In the past, shale producers used to respond to high prices,” Halff said. “Now they are more like OPEC and plan with an eye on margins and revenue stability.”
West Texas Crude is Lighter and Sweeter Than OPEC’s Average
Crudes characterized as “heavy” or “sour” require more complex refining
Brazil
The International Energy Agency expects Brazil to add 300,000 barrels a day this year from giant production tankers that extract a medium grade of crude oil from deep-water fields including Tupi, Buzios and Mero.
Each offshore vessel costs about $2 billion and operators put them to work as soon as they’re finished to start paying off construction costs. As a result, by later this year Brazil could be either providing relief to strained oil consumers, or swamping a weak global economy with surplus barrels.
That said, these massive projects are prone to delays with Petrobras last month postponing the start date for three units. The EIA, therefore, expects output to grow by a more modest 200,000 barrels a day this year.
Heavy Crudes Typically Need Added Refining Steps
Canadian oil is suited to refineries in the US Midwest which are tooled to handle the sludgy crude produced in the oil sands
Guyana
Guyana, a country of less than a million inhabitants, boasts one of the largest oil discoveries in recent years and is poised to become the region’s third-biggest producer by the end of the decade. Exxon Mobil Corp. will start its third offshore project there earlier than expected — in the fourth quarter of this year, bringing total production to 600,000 by 2024. Output could reach as high as 1.6 million barrels a day by 2030, according to Goldman Sachs Group. Inc. The oil produced from Guyana’s Liza field is a light, sweet grade similar in quality to Nigeria’s Bonny Light.
Canada
In Canada, the world’s fourth-largest oil producer, an expansion of the Trans Mountain pipeline is likely to spur some incremental new production, as well as shift flows of heavy Canadian oil from the US Midwest to Asian markets. Output is currently at an eight-year high and producers are starting to invest in new production again. Cenovus Energy Inc. plans to pump an additional 120,000 barrels a day over the next four years while International Petroleum Corp announced plans for an $850 million oil sands project, which is scheduled to start producing in 2026 and ramp up to 30,000 barrels a day by 2028.
Related tickers:
Petroleo Brasileiro S.A.
Exxon Mobil Corp.
Cenovus Energy Inc.
International Petroleum Corp