US benchmark crude oil prices fell by over 2% on Monday, with West Texas Intermediate (WTI) dipping below the $76 mark. This decline came despite Goldman Sachs forecasting that US crude would contribute to 60% of non-OPEC output growth this year.
At the time of writing, WTI was trading at $75.52, down 2.13%, while Brent crude was down 2.02% at $79.49, pulling away from the $80 mark.
The market's reaction is likely influenced by the ongoing conflict in the Middle East. Israel has vowed to avoid a full-scale regional war after a deadly Hezbollah attack on the Golan Heights over the weekend.
While Goldman Sachs predicts a US crude production increase of 500,000 barrels per day (bpd) in 2023, this is a slower pace than the over 1 million bpd increase seen last year. Despite the slower growth, the US is expected to be the primary contributor to non-OPEC production growth, with the Permian Basin projected to increase output by 340,000 bpd. However, this is down from the bank's earlier forecast of 520,000 bpd.
Goldman Sachs attributes the Permian Basin's slowing growth to its maturing geology. Technological and efficiency gains have been the primary drivers of growth since 2020, but the bank warns that "the Permian is maturing, and its deteriorating geology will weigh on the production of crude oil down the road."
The rig count in the Permian Basin has dropped by nearly 15% since April last year, falling to 309. This is 30% lower than the average observed between 2018 and 2019. Goldman Sachs predicts that the rig count will fall below 300 by the end of 2024.
Despite this decline in rig count, Goldman Sachs believes that output per rig will continue to rise due to industry consolidation favouring more productive rigs and technological advancements. Yulia Grigsby, an energy economist at Goldman Sachs, highlighted that "This year, every stage of a wellâs building cycle in the Permian was 20-50 percent faster than in 2019, with the total average time from rig to production decreasing by a third to 63 days." This acceleration, she argues, will boost the share of new and productive wells while offsetting declining wells.
Meanwhile, OPEC has predicted that global oil demand growth will significantly outpace non-OPEC supply growth over the next two years. The organisation expects global demand growth to reach 2.25 million b/d in 2024 and 1.8 million b/d in 2025, surpassing non-OPEC supply growth of 1.34 million b/d and 1.27 million b/d, respectively. This projection is driven by a stronger Chinese economy. The US, Canada, Brazil, and Guyana are expected to be the key contributors to non-OPEC production growth.
With the Permian Basin's growth slowing and OPEC's forecast suggesting strong global demand, the market is closely watching how these factors will shape oil prices in the coming months.