Oil enjoyed a day of two halves yesterday, first slipping lower before reversing course to claw back some of Wednesday’s hefty losses. The initial pullback was underpinned by the bearish afterglow of the latest upswing in US crude stocks. Sentiment was also pressured by fears of a dreaded second wave of COVID infections amid worsening outbreaks in the US. Several states are grappling with a record spike in cases, which in turn knocked economic recovery hopes.

Yet demand concerns were soon brushed aside as the energy complex capitalised on a rebound on Wall Street. Leading US equity gauges rallied by more than 1% as regulators eased post-2008 banking rules. Adding to the positive tone was data showing the pace of US jobless claims continued to slow, albeit only just. A further 1.48 million Americans filed for unemployment benefits last week, above the 1.3 million estimate and barely down from 1.54 million in the previous week. On a more encouraging note, continuing claims edged below 20 million for the first time in eight weeks.

All in all, the recovery in the US labour market remains painfully slow. However, this failed to cause much alarm among investors, as did the latest warning from the IMF of asset bubbles. The Washington-based lender cautioned that the disconnect between market optimism and bleak economic fundamentals has left risk assets vulnerable to a correction. Markets have got ahead of themselves and with the coronavirus pandemic still doing the rounds, there remains plenty of volatility on the horizon.

Advantage OPEC

We’re all familiar with the doom and gloom narrative when it comes to non-OPEC supply. Output from producers outside of the oil cartel has plunged after a collapse in demand and prices forced extensive production shut-ins. Nowhere is this more true than in the US. Shale producers have hit the brakes after years of rapid growth. The low-price environment coupled with bulging domestic oil stocks and limited storage has wreaked havoc on the US shale industry. Small wonder, then, that the US is on track to suffer the deepest supply losses this year. Total US oil production is forecast to drop by 900,000 bpd in 2020, according to the IEA.

But it’s not all bad news. Other non-OPEC producers are poised for production gains this year despite the less-than-auspicious backdrop. Leading from the front is Norway. Output from Europe’s largest oil producing nation has declined every year since 2016 and fell last year to the lowest level since 1990. Yet change is now afoot in Norway’s oil patch. A strong start to the year culminated in Norway’s oil output hitting a three-year high of 2.1 mbpd in April, according to government data. The lion’s share of these gains have been spearheaded by the launch of the Johan Sverdrup oil field last October.

Further gains would have been forthcoming were it not for Norway deciding to join OPEC+ in helping rebalance oil markets. The country has agreed to reduce production by 250,000 bpd this month, followed by a 134,000 bpd cut for the remainder of the year. Yet even adjusting for the cuts, the IEA predicts that Norway’s total oil production will increase by 300,000 bpd this year. Looking ahead to next year, it is well positioned for additional growth as it rolls back voluntary supply curbs and benefits from new project start-ups.

Following closely in Norway’s footsteps is Brazil. The Latin American producer had a golden year in 2019 as oil production scrambled past the 3 mbpd threshold for the first time. This record showing spilled over into this year. Brazil’s oil production rose by 20% in January from the same month earlier to an all-time high of 3.17 mbpd. It held steady in the following months as the virus-induced price collapse and a dramatic fall in demand had a limited impact on output. Now, though, the country has become ground zero for the coronavirus pandemic. Only the US and Russia have more infections and it currently has the worst COVID growth rate of any G20 country. Domestic fuel demand is expected to take a big hit and this may cause a commensurate drop in oil production. Even so, the looming addition of fresh supplies from existing pre-salt fields should see Brazil’s oil production expand by 160,000 bpd, according to the IEA’s latest estimates.

Aside from Norway and Brazil, there is a dearth of non-OPEC growth centres. That said, there are rumours of a potential US shale comeback. Some producers have recently announced a partial reversal of output cuts as US crude prices doubled from April’s low. Yet any recovery in US crude supply will be short-lived and modest at best given the current price level. Staying in the region, Canada is on course to suffer the same fate as its southern neighbour. Supply from the North American producer is trailing below year-ago levels as low prices have forced shut-ins at high-cost oilsands sites. Accordingly, the IEA expects the country’s oil output will decline by 430,000 bpd this year. Overall, the agency has pencilled in a record 3.1 mbpd annual decline in non-OPEC supply for 2020. This will be followed by an 800,000 bpd rebound in 2021. Beyond that, however, the sharp reduction of upstream investments to date will limit non-OPEC production growth, much to the delight of OPEC.