The International Energy Agency and US energy department are upbeat about non-OPEC supply in 2020 and that can have a bearing on the oil-producing countries' production policy.
It was after almost two months that NYMEX crude oil breached $58 per barrel on November 18 only to weaken again to trade near $56 per barrel the next day.
Crude oil has been on an upward path for the last few days, largely on the back of US equity market strength and on expectations that non-OPEC supply may slow down in 2020.
Bloomberg reports that Organisation of Petroleum Exporting Countries Secretary-General Mohammad Barkindo recently said there would likely be big revisions in non-OPEC supply going into 2020, particularly from shale basins in the US.
The prediction came after major American shale producers, including Pioneer Natural Resources Co, warned that the shale boom was ending.
Estimates from a US financial services firm noted that the American shale producers were set to reduce capital spending by around 13 percent in 2020 compared to this year.
OPEC, in its monthly outlook, trimmed its 2020 forecast for non-OPEC supply growth by 40,000 barrels per day to 2.17 million barrels per day. Non-OPEC supply is estimated at 66.46 million bpd.
Drop in the US crude oil rig count also supports the view that production interest is slowing. The number of rigs drilling for crude has fallen for the last four consecutive weeks and stood at 674 rigs for the week ended November 15, the lowest since April 2017.
There are, however, little signs of the US supply slowing down. As per the US Energy Information Administration (EIA) weekly report, the crude production hit a fresh record high of 12.8 million barrels per day for the week ended November 8.
The latest EIA drilling activity report also noted that the crude production from shale resources may increase from 9.084 million barrels per day to 9.133 million barrels per day.
International Energy Agency (IEA) and US energy department are also upbeat about non-OPEC supply in the coming year.
In its latest monthly report, IEA raised non-OPEC supply forecast for 2020 from 67 million barrels per day to 67.1 million barrels per day. US EIA, in its monthly outlook, raised 2020 non-OPEC estimate from 67.78 million barrels per day to 68.02 million barrels per day.
Outlook for non-OPEC supply is pivotal ahead of OPEC's meeting on December 5-6, when the producer group and allies will discuss their production policy.
The current 1.2 million barrels per day production cut deal will continue until March 2020. If OPEC members agree that non-OPEC supply growth may slow down in 2020, they may refrain from deepening the cut.
(The author is Head – Commodity Research at Kotak Securities.)Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.