As oil prices try to find a floor, plenty of risks remain. In the short-term, the risks are firmly skewed to the downside, particularly for WTI, as inventories are set to continue rising. But equally, in the medium term, too much focus on US tight oil and its responsiveness is detracting from the much bigger base of the rest of non-OPEC supply (48 mb/d), which is at greater risk.
Indeed, while much of the focus for the sharp fall in oil prices has been on US tight oil, easing in OPEC disruptions and weaker Chinese growth, an improvement in non-OPEC supply outside of the US has also played a part, as a huge backlog of projects came online in 2013 and 2014.
On a quarterly basis, from Q2 11 through to Q1 13, non-OPEC supply ex US declined y/y by 0.55 mb/d, with the peak fall in Q3 12, with some months seeing falls of over 1 mb/d. The decline was led by the North Sea, weaker Azeri and Kazakh output, Brazilian output falling for the first time in over a decade, and geopolitical outages in Syria, the Sudans and Yemen.
This changed in H2 13, much as in 2002, when the start of projects overdue since 2011 led to rising output in Brazil and the US Gulf of Mexico. It is true US tight oil growth matters most at the margin, but only when baseline non-OPEC supply holds. So the supply picture outside of North America is hugely significant. We believe FSU, LatAm and North Sea output are at most risk, with some suggesting Russia alone could decline by over 0.5 mb/d y/y in 2015.
Even though tight oil growth will return (and become more efficient as the acreage from the weaker players moves to the stronger ones) once prices recover, 2015 could well mark another turning point for the rest of non-OPEC supplies, with long term repercussions.