BP Sees Surging Demand Growth and U.S. Dominance as Saudis Stick to the OPEC Oil Cuts

BP says the U.S. could represent half of the world's total growth in oil supply over the next 20 years. File Image / Pixabay

The symptoms of the fundamental shift in crude producing power from the Middle East to the U.S. are evidenced almost daily, with the latter cheerfully increasing capacity and the former struggling under the burden of production cuts, and Wednesday was no exception: it saw more predictions of shale's dominance as well as grim vows from Saudi Arabia to continue curbing output.

Of course, part of the U.S.'s ongoing success is due to rising global demand, and on that score Spencer Dale, chief economist for BP, told Bloomberg television that "We see oil demand growing strongly this year; I'm a bit nervous to put a precise number on it, but I think significantly stronger than the average growth rate over the last 10 years, which is like a 1 million barrels per day [bpd] number - it looks stronger than that."

He went on to say that this is helped by two factors: "Prices still remain pretty low, and secondly, the world economy is growing at a fairly solid rate."

Taking the longer view, Dale conceded that at some point oil demand will stop growing, but he resisted using the phrase "peak oil demand" because of the implication that once that peak is reached, then oil consumption "will fall away sharply; I think the better way to think is don't think peak: think plateau", suggesting that oil demand will continue "for many decades to come."

Dale cited U.S. shale as having the probability to represent half of the world's total growth in oil supply over the next 20 years.

Agreeing with BP's near-term outlook was Michael Loewen, a commodities strategist at Scotiabank: he told Bloomberg, "We have strong demand, we have increasing exports, we have a lots of things going on."

However, the problem for Middle Eastern producers is that an increasing amount of this demand is being met by the U.S. while they are obliged under the Organization of the Petroleum Exporting Countries (OPEC) production cutback deal to restrain output in the name of warding off another global glut.

OPEC in its latest monthly report released Wednesday said non-OPEC producers would boost supply by 1.66 million bpd in 2018, the fourth straight rise from 870,000 bpd forecast in November.

The cartel stated, "For 2018, higher growth is expected on the back of the projected increase in U.S. shale production following a better price environment not only for shale producers, but also for other countries such as Canada, the UK, Brazil, and China."

This wlll lead to "a higher quarterly distribution throughout the year with a record-high level projected for the fourth quarter", OPEC forecast.

Although many OPEC members - most notably Iran - are chomping at the bit to ease the output restrictions, Saudi Arabia on Wednesday announced it will keep its crude oil production in April below 10 million bpd, and maintain exports under 7 million bpd.

An energy ministry spokesman said the Saudis along with OPEC and non-OPEC oil producers "remain committed to pursuing the common objective of restoring inventories back to their normal levels."

Earlier this week, ING Groep NV suggested that the urge of so many OPEC members and allies to pump full-out in order to counter the U.S. making continued inroads into their traditional export markets will in all likelihood cause the cutback deal to soon fall apart.