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Irina Slav

Irina Slav

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.

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Moody’s: The Shale Band Is Back, And Here To Stay

Oil prices will remain volatile this year but within range, Moody’s said in its annual report on the oil and gas industry. The top factor to watch in 2019 would be OPEC+ discipline in adhering to the production cut agreement that the group sealed in December.

"Market expectations for continued strong oil demand growth remain in place, despite concerns about slowing demand growth as a result of weaker economic growth, the impact of tariffs and a strong U.S. dollar," said the credit ratings agency’s managing director for oil and gas, Steve Wood, adding that "Very high Saudi and Russian production, in particular, has heightened supply volatility, so whether OPEC and Russia maintain production discipline and renew agreements to limit output are key concerns going into the new year."

Moody’s expects West Texas Intermediate to remain within a range of US$50-70 a barrel over the next five years, noting that although efficiency gains have served as tailwinds for U.S. oil production, pipeline bottlenecks have at least partially offset the positive effect by raising transportation costs.

The agency’s stance is reasonably guarded and echoes other forecasts for oil prices this year. JP Morgan, for example, earlier this week warned that OPEC+ might need to extend the production cuts until the end of the year as rising U.S. production was likely to offset any supply declines. Related: Oil Begins New Year With A Loss

Focusing on the U.S. oil and gas industry, Moody’s said investor returns from the upstream segment will remain pressured this year, but it had some good news about the oilfield services sector: there, Moody’s expects a 10-15 percent improvement in earnings. Still, the agency added, on the whole, oilfield services earnings will remain low, with most of the improvement manifesting itself towards the end of the year.

Oil prices are currently gaining, after tanker tracking data suggested Saudi Arabia’s crude oil exports in December fell by about half a million barrels daily. At the time of writing, Brent crude traded up 1.15 percent at US$55.54 a barrel with WTI at US$46.74, up by 0.43 percent.

By Irina Slav for Oilprice.com

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  • Dan on January 03 2019 said:
    The WSJ article on the Permian sounds like it is more a bust for most drillers there. If many wells are 63% production below forecasts can any price save the Permian? Way too many wells for higher production per well and their answer to drill more only compounds the issue. No wonder Exxon relies more on not giving production forecasts, the next Apple?
  • Mamdouh G Salameh on January 03 2019 said:
    During 2017 the United States tried to lock oil prices into a new trading zone which became known as the shale band to prevent them from breaking through the $60/barrel barrier. However, the oil price did break through that barrier.

    The US tried again to prevent oil prices breaking through $70/barrel barrier in 2018 but robust global oil fundamentals enabled the price to break through again.

    The US is at it again in 2019. The principle is simple. Every time oil prices show signs of surging, the US resorts to manipulation of the oil prices through hyped claims about rising US oil production and significant build-up in US crude and products inventories and also hiking the value of the US dollar opposite other currencies.

    To mitigate the impact of such malpractice, OPEC members should seriously consider reducing if not cutting altogether all their oil exports to the US estimated at 3.2 mbd which have been augmenting US crude oil inventories.

    They could also adopt the petro-yuan in preference to the petrodollar since 80% of their oil exports go to the Asia-Pacific region particularly China. That could prove to be the most lethal weapon in their arsenal against the United States.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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