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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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US Shale, End Of OPEC Cuts Could Stifle Oil Prices In 2018

OPEC

Although current supply and demand fundamentals point to a possible rise in oil prices by the end of 2017, next year’s supply will likely outgrow demand and depress oil prices, according to a panel of industry analysts at the S&P Global Platts Asia Pacific Petroleum Conference.

In 2018, non-OPEC supply from U.S. shale will increase, and the current deadline for OPEC’s cuts—March 2018—also points to higher OPEC supply when the production pact ends, if it ends at the end of Q1 2018. OPEC is taking its time on deciding whether to extend and/or deepen the cuts, and is saying—as usual—that “All options are left open.”

”I don’t think we go any higher than we are today,” Mike Wittner, managing director and global head of oil research at Societe Generale, said at the panel.

Although market rebalancing is underway, OPEC and friends would have to extend their collective cuts for the whole of 2018 to achieve the market balance and erase the inventory overhang, according to Wittner.

On Monday, WTI closed at US$52.22 a barrel, up by 3 percent, while Brent crude settled at US$59.02—its highest since July 2015—on the back of growing optimism that the OPEC production cut deal is finally having a palpable effect on global supplies of crude oil, and the equally growing worry that the Middle East could be in for more tensions—this time between the Kurdish nation and the countries it inhabits, following an independence referendum in the Kurdistan autonomous region in Iraq.

These higher WTI prices are now prompting U.S. shale drillers to hedge again and lock in production that will be seen six to nine months from now, according to analysts at the APPEC conference panel.

“There could be a hiccup in 2018 when we see a renewed surge in non-OPEC production,” David Fyfe, chief economist at Gunvor, said.

Related: Failed Oil Price Recovery Slams Energy Stocks

“I suspect they’re hedging now,” Ed Morse, global head of commodities for Citi Research said.

“It takes about three months from hedging to make rigs available and six to nine months to see increased production,” Morse noted.

Earlier this month, the IEA reported that world oil supply fell by 720,000 bpd in August compared to July, while on the other hand, the agency revised up its forecast for oil demand growth this year to 1.6 million bpd from the previous estimate for 1.5 million bpd growth.

The IEA may have published the most bullish oil report so far this year, but according to IEA’s chief OPEC oil analyst, Peg Mackey, who spoke at the APPEC conference, a “sharp decline of inventories next year looks unlikely.”  

By Tsvetana Paraskova for Oilprice.com

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