OPEC Squeezed by US Shale


Crude prices rose higher on Monday, boosted by hopes for new output cuts prior to a meeting between OPEC leaders and U.S. shale producers later in the day.

The futures on Brent oil rose by 0.19 USD, or 0.30%, to 64.56 USD per barrel, and US WTI crude expanded by 0.16 USD, or 0.26%, to 61.41 USD per barrel. This came after it hit a two-week rock bottom of $63.20 last Thursday.

U.S. production is set to grow by 3.7m barrels per day (bpd) over the next five years as producers take advantage of higher oil prices, which were boosted by a landmark deal between the Organisation of Petroleum Exporting Countries (Opec) and non-Opec nations to curb output to reduce the global glut. It is set to begin on Monday. There have also been worries that it could undermine the global efforts to rid the market of excess supplies. Over 2,500 oil company executives and government leaders are expected to attend the event in Houston. The total count now is 800, the highest level since April in 2015. Russian Federation pumps about 11 million barrels of oil each day. It was adopted last winter by OPEC, Russia, and nine other global producers.

On the other hand, market participants were still digesting Trump's announcement of imposing tariffs of 25 percent on imported steel and 10 percent on aluminum.

American energy optimism is in sharp contrast to views in the Canadian energy industry, which is reeling from US$30 per barrel discounts for domestic heavy oil and a lack of new pipelines to reach export markets in the USA and elsewhere.

"It has an impact but not the impact we expected". It would potentially send back the dollar steeply lower.

Oil prices edged lower toward $64 per barrel on Monday on predictions of a major spike in US oil output in the next five years.

"Today's spike in the equities was a large driver behind today's (oil) price recovery", Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a report.

USA oil output has continued its sharp growth over the past year. "Without large-scale capital investment, the US domestic market can only absorb about a quarter of the additional four million b/d of USA crude expected to enter markets [by] 2023, leaving the rest for exports", Wood Mackenzie said. This is because growth from shale fields more than counters declines in conventional supplies. Thanks to the shale revolution, the United States leads the picture, with total liquids production reaching almost 17 mb/d in 2023, up from 13.2 mb/d in 2017. The crude oil production in the USA is now overtaking Saudi Arabia as largest exporter, reaching 10.28 million barrels per day.

The International Energy Agency (IEA), in a report out Monday, said the USA will fulfill most of the world's growing oil demand over the coming five years.

Increases in US production alone will cover 80 percent of the world's demand growth in the next three years - with Canada, Brazil and Norway covering the rest, the report said.

Abhishek Kumar, senior energy analyst at Interfax Energy's Global Gas Analytics in London, said comments about "Venezuela's deteriorating oil-production profile, together with prospects for strong compliance with the OPEC-led output-cut agreement, (were) supportive of oil prices".

The IEA expects global oil demand to increase by 6.9m bpd by 2023 to 104.7m bpd, with China driving demand growth.