Global  Video

“The world's speediest news portal”
One News Page
> >

OPEC's War Against Shale Is Far From Over

Zero Hedge Friday, 10 November 2017
OPEC's War Against Shale Is Far From OverAuthored by Gregory Brew via OilPrice.com,

Despite the recent market rally and current bullish streak in oil prices,* the years-long competition for market share between OPEC and U.S. shale producers shows no sign of abating*, and will likely continue for the next several years at least.

That was OPEC’s conclusion in the group’s World Oil Outlook released this week. *OPEC believes U.S. shale production will grow faster than previously expected, reaching 7.5 million bpd by 2021, an increase of 56 percent from the group’s estimate last year.*

According to OPEC calculations, current shale production in North America is approximately 5.1 million bpd—an increase of 25 percent from a year ago.

*Despite low prices, shale has shown remarkable resilience and an ability to bounce back from downturns.*

OPEC expects shale to finally taper off by 2025 and decline by 2030, by which point OPEC will have increased output by eight million bpd, from 33 million bpd to 41.4 million bpd.

By 2021, oil demand will increase by 2.3 million bpd, a fairly bullish projection. OPEC expects fierce competition with North American shale producers for market share, particularly when regulations on shipping fuel take effect in 2020, increasing refinery demand for fuels that shale producers will be well-positioned to provide. * Related: The U.S. Export Boom Goes Beyond Crude*

Total U.S. production will increase by 3.8 million bpd by 2022, chiefly on the back of increased shale output, equal to seventy-five percent of production growth outside the fourteen members of OPEC.

That growth will be front-loaded, says OPEC, as drillers seek out new fields and aggressively exploit current shale deposits. Yet OPEC admitted that shale will capture more market share in the short term, likely out-competing OPEC output. The group will probably commit to an extension of production cuts when it meets on November 30, and those cuts could extend to the end of 2018 and beyond, in order to raise prices.

*But no one is tying the hands of shale producers, who are free to pump as much as they want. Higher prices are a powerful incentive for output to increase, with inventories rising unexpectedly this week by 2.1 million barrels after steady declines for the last two months. U.S. production, according to the EIA, rose by 67,000 bpd in the first week of November, rising to 9.62 million bpd.*

Shale looked like it was slumping earlier this year. The rig count has steadily fallen since August, despite the increase in prices. Total production peaked in mid-2015 and then experienced a steady decline to August 2017.

* A sudden increase could be possible if prices fix above $60, as many now predict, but it could take some time to translate into higher production.*

OPEC is leaving the door open if it extends cuts—a tactical move that its leadership probably knows will cost it market share in the near term. Yet not everyone thinks the extension is a done deal. The head of Citigroup Inc. noted that hedge funds are banking on an extension before it becomes a reality. If tight market conditions emerge in 2018, Citigroup thinks U.S. shale will surge again, cutting back the balance put in place by the OPEC cuts. While the OPEC cuts are likely to be extended, Citigroup doesn’t see them lasting through to the end of 2018.

In advance of the OPEC meeting, expectations about a “fair” might have to change. A year ago, most OPEC producers would have been happy with $50, but now the expectation is that Brent will hit $70 by the end of the year. For OPEC states that have struggled for the last few years with budget deficits, the promise of higher prices is an immense temptation to cheat on their production quotas and break compliance with the cuts.

*OPEC greed, increasing shale output and lower-than-expected growth could cause the price to fall again sooner rather than later. Then again, a sudden spike in geopolitical volatility in the Middle East or Venezuela could reduce output and tighten markets sooner than expected.*

OPEC anticipates a fierce battle ahead with U.S. shale. Nevertheless, the group has much to be thankful for, as prices have recovered and markets appear to rebalance. Despite Citigroup’s skepticism, it’s likely OPEC leaders will soon agree on a further extension of cuts. While this could leave the door open to another surge in shale production, OPEC appears confident that, in time, the threat from shale will recede.
0
shares
Share on
Facebook
Share on
Twitter
Post on 
Reddit
Share by
Email
 
Source: Bloomberg Technology - < > Embed
News video: Bank of Tokyo-Mitsubishi's Khoman Is Bullish on Shale

▶ Bank of Tokyo-Mitsubishi's Khoman Is Bullish on Shale 02:16

Nov.14 -- Ehsan Khoman, head of MENA research at Bank of Tokyo-Mitsubishi, discusses the state of play in the oil markets, OPEC production cuts, the outlook for shale oil and where he sees oil prices heading. He speaks on "Bloomberg Markets: Middle East."

You Might Like


Recent related news

OPEC And Shale Keep Oil Prices Between $60-$75

The interaction between U.S. shale and OPEC will continue to be the dominant narrative in the oil market this year, and the opposing forces could end up trapping...
OilPrice.com - MarketsAlso reported by •allAfrica.com

Tweets about this


Other recent news in Markets

DIVIDEND Investors: 2 Oversold Stocks to Stick in Your RRSP Right NowUnite Group FY17 PROFIT Climbs; Ups Dividend; Says Business In Good Position
Petro Ignited: Venezuela Launches Pre-Sale Of Oil-Backed National CRYPTOCURRENCYEUROPE close: Stocks higher as euro dips
Chart of the day: Bearish outlook for Europe’s STOCKSRMIT University Launches AUSTRALIA’s First Blockchain Course
Environmentally friendly: One News Page is hosted on servers powered solely by renewable energy
© 2018 One News Page Ltd. All Rights Reserved.  |  About us  |  Disclaimer  |  Press Room  |  Terms & Conditions  |  Privacy Policy  |  Content Accreditation
 RSS  |  News for my Website  |  Free news search widget  |  Help  |  Contact us  |  DMCA / Content Removal
How are we doing? Send us your feedback  |   LIKE us on Facebook   FOLLOW us on Twitter   FIND us on Google+