The end of the strike…
Oil prices fell this week…
Daniel Yergin, the oil analyst vet, told CNBC he expected U.S. crude oil production to increase by more than half a million barrels this year, revising an earlier forecast from December, when he saw the increase at between 300,000 and 500,000 barrels per day.
The forecast is based on oil prices staying within the current US$50-55 band, Yergin said. The higher prices have allowed shale producers to increase production indeed, but now drillers and frackers are starting to raise their prices, after suffering a more severe blow from the oil price crash than E&Ps and being forced to sell their services at discount.
Yergin cited improved efficiency as the driver behind the production growth that he expects to see this year, and it may very well be the case that further improving efficiency will become a key concern for E&Ps as a way to offset the higher quotes service providers are offering: some drillers and frackers are asking double what they were asking for their services two months ago.
This could curb the upward potential of production growth, but to what extent is still unclear. At the same time, further dampening optimism, OPEC’s assurances that the production cut is going according to plans have failed to push up prices above US$55 for longer than a few days.
Yesterday, another analyst, the managing director of BK Asset Management, warned that oil prices are in a very vulnerable place and the longer they stay within the US$50-55 range, the more likely they are to eventually start declining, rather than rising. Boris Schlossberg told CNBC that if WTI drops to US$50 from the current US$52, the further move downwards will become much more likely than it is now.
Should this happen, E&Ps in the shale patch will need to really start thinking fast to balance growing production costs and falling prices.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.