How Healthy Is Oil Production Outside Of OPEC?

In a new report, Citi Research analyst Ryan Todd looked at the outlook for non-OPEC crude oil producers. Citi believes that higher oil prices are on the way in the long-term and that U.S. producers could be seeing a big pick-up in demand by 2020.

Production Collapse Not Coming

Despite major capital cuts, Citi analysts forecast resilient non-OPEC production through 2017. According to the report, Citi estimates 150-200 Mb/d of non-OPEC production growth between 2015 and 2017.

U.S. The New Swing Producer

Analysts see an increase in global demand driving U.S. production growth as soon as the end of 2016. “Even with moderate growth in Non-OPEC production, solid global crude demand will still result in a call on U.S. onshore production growth, although not likely until 2H16 (+350 Mb/d b y 4Q16), rising to ~500+ Mb/d in 2017,” Citi explains.

The report names OPEC production unpredictability and the uncertainty of the Iran sanctions as two risks to U.S. production demand.

Higher Prices On The Way

Higher crude prices will be needed to provide sufficient economic incentive for production growth. Citi believes that $65-$70/bbl is needed to support moderate growth.

Major Project Deferrals

Analysts note that there were only six major global oil projects in 2014, the smallest number in 15 years and well below the long-term average of 23 per year. Citi predicts that the deferral of major projects will ultimately result in an increase in U.S. crude demand of 1,000 Mb/d/yr before 2020.

Stock Picks

The report names Buy-rated Marathon Oil Corporation MRO, Devon Energy Corp DVN, Occidental Petroleum Corporation OXY and EOG Resources Inc EOG as its top stock picks in the oil space.

Citi has Hold ratings on Hess Corp. HES, Murphy Oil Corporation MUR and Exxon Mobil Corporation XOM.