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US shale projections pressure oil prices

HOUSTON, February 17, 2017 – Oil prices fell slightly on Friday despite OPEC’s bullish report earlier this week, with Brent futures down by around 0.5% at USD 55.31 per barrel in early afternoon trade.

Rising stocks and upward trends in US shale production are weighing on investors’ minds, experts say. Some have long predicted “a cat-and-mouse game” this year between OPEC and US shale producers.

“We did not pass the period of the oil and gas industry being volatile just yet,” a senior executive at a major Abu Dhabi oilfield services company told TOGY on condition of anonymity.

“American companies have survived at USD 30 per barrel, now they’re at USD 50, it’s a big difference. They’ve managed to cut down their costs, and they say, bingo, go for it. That’s why the dynamic of the American industry is completely misread by the OPEC.”

US shale oil production is projected to increase next month by 79,000 bopd, the EIA reported earlier this week, to 4.78 million bopd, the most significant rise since last October when it went up by 60,000 bopd. The US rig count has almost doubled in the past seven months, and at 591 last week, was the highest since October 2015. US officials believe output is set to grow further.

“The industry is excited about USD 50-per-barrel oil,” Christi Craddick, chair of the Railroad Commission of Texas, the state-level energy regulator, told TOGY.

“They think that if we can hold the price there, they are ready to start development again. There have not been discounts on the price of leasing in the Permian Basin and that is a good sign that the growth will happen there.”

 

Less crude, more refining
Not everyone thinks that the US should significantly increase oil exports, with some arguing for expanding refining capacity and upping the US share of refined products trade.

“The big opportunity for the USA is not to be the world’s leading oil exporter,” Ryan Sitton, commissioner at the Railroad Commission of Texas, told TOGY.

“Oil is not that hard to get out of the ground, especially in countries such as Saudi Arabia. However, what do you do with all that crude oil? The advantage for the USA is our refined products.”

Amid much uncertainty and volatility, there are those who believe the global oil glut will go down significantly later this year, particularly if producers extend the output cut agreement in some form.

“Assuming production cuts are extended in some form, the biggest impact is likely to come during the three months from July to September,” Reuters’ analyst John Kemp wrote.

But Kemp and others also expect US shale to be a wild card this year.

“I think the market was very very encouraged by [the OPEC report],” Martyn E. Goossen, JPMorgan Chase’s president for the Houston region, told TOGY.

“I think they are re-meeting in May to assess where they are and where oil prices are. I think as long as they see shale producers ramping up production as much as they are, there is going to have to be some give and take.”

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