• 7 hours OPEC, Russia Said To Announce Oil Pact Extension On Nov 30
  • 10 hours Wintershall And LetterOne In Talks For $12B Oil, Gas Merger
  • 12 hours India Exempts State Oil Firms Mergers From Competition Approval
  • 14 hours Turkey Targets $5B Investment In Wind Energy By End-2017
  • 16 hours Weatherford Looks To Sell Assets To Ease Some Of $8B Debt
  • 17 hours OPEC Set To Move Fast On Cut Extension Decision
  • 20 hours Nigeria Makes First Step Away From Oil
  • 1 day Russia Approves Profit-Based Oil Tax For 2019
  • 1 day French Strike Disrupts Exxon And Total’s Oil Product Shipments
  • 2 days Kurdistan’s Oil Exports Still Below Pre-Conflict Levels
  • 2 days Oil Production Cuts Taking A Toll On Russia’s Economy
  • 2 days Aramco In Talks With Chinese Petrochemical Producers
  • 2 days Federal Judge Grants Go-Ahead On Keystone XL Lawsuit
  • 2 days Maduro Names Chavez’ Cousin As Citgo Boss
  • 2 days Bidding Action Heats Up In UK’s Continental Shelf
  • 2 days Keystone Pipeline Restart Still Unknown
  • 2 days UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 3 days Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 3 days Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 3 days German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 3 days Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 3 days Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 4 days Oil Prices Rise After API Reports Major Crude Draw
  • 4 days Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 4 days Gazprom Speaks Out Against OPEC Production Cut Extension
  • 4 days Statoil Looks To Lighter Oil To Boost Profitability
  • 4 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 4 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 4 days Whitefish Energy Suspends Work In Puerto Rico
  • 4 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 4 days Thanksgiving Gas Prices At 3-Year High
  • 4 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 5 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 5 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 5 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 5 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 5 days ConocoPhillips Sets Price Ceiling For New Projects
  • 7 days Shell Oil Trading Head Steps Down After 29 Years
  • 7 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 8 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
Alt Text

The 10 Most Influential Oil Countries

The world’s largest oil-exporting countries…

Alt Text

Tesla Investors Are Losing Patience

Elon Musk has a history…

Alt Text

Don’t Back U.S. Shale To Keep Oil Prices Down

The common assumption that U.S.…

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.

More Info

2017 Oil Market Recovery Is Sure To Be Slow

Eagle Ford

This year has been tumultuous for oil. From the US$27 a barrel trough we witnessed in February to the spike to US$55 after OPEC announced a labored deal to reduce production at the end of last month, it’s been a crazy ride.

By all means, the OPEC deal, followed by a supplementary one with 11 external producers, was the event of the year in oil. The deals were the first concerted effort at restoring the balance between supply and demand on global markets since 2008.

Unfortunately, the enthusiasm it was met with proved to be short-lived for a number of reasons, among them the historical precedence of cheating among OPEC members when it comes to cutting production, the exemption of some of the cartel’s biggest producers from the deal, and the unwillingness of some big non-OPEC producers such as Brazil to partake in the cut.

It’s against this background that the Energy Information Administration (EIA) has released its latest, and last for the year, Short-Term Energy Outlook, which, combined with analyst forecasts, paints a not-too-bright picture for oil’s immediate future.

1. Fundamentals.

Global production of crude, according to the EIA, will rise to 97.42 million bpd in 2017, versus consumption of 96.99 million bpd.

In other words, OPEC’s deal is not going to restore balance because, the agency says, “The extent to which the announced plans will be carried out and actually reduce supply below levels that would have occurred in their absence remains uncertain.”

(Click to enlarge)

Moreover, even if all OPEC and non-OPEC members comply with their obligations under the agreement – unlikely, as we noted earlier – the U.S. shale operators are always ready to raise production as long as prices remain above US$50.

Already, the EIA has forecast that shale output in 2017 will decline by less than 100,000 bpd – a drop in the global sea of oil. And it might actually rise if prices remain at current levels. Related: Who Won The 2016 Oil War?

2. Prices.

Reflecting the bearish situation on the fundamentals front, prices, according to not just the EIA but a variety of analysts from institutions--including the World Bank, Goldman Sachs, Mitsui &Co, and Bank of America Merrill Lynch--Brent and WTI benchmark prices will most likely stay within the US$50-55 band.

(Click to enlarge)

Headwinds are strong and upward potential remains weak, that’s the short of it. Some, like BofA and JP Morgan are more upbeat, while Mitsui is more guarded in its predictions, as the chart below shows.

(Click to enlarge)

Source: Bloomberg, Reuters, World Bank

Still, the oil market is so volatile that even these institutions, which we all quote when they update a forecast, are not sure what the next day will bring. Goldman, for one, changed its mind about oil prices twice within a week. This volatility will remain high in 2017, too, judging by the current situation on this market.

3. Investments.

Upstream spending on exploration in oil and gas is set to fall in 2017 to its lowest since 2005, according to Wood Mackenzie, to US$37 billion, from this year’s US$40 billion. This would mark the third year in a row of declining expenditures on exploration.

(Click to enlarge)

The good news: 2018 should see an uptick in exploration investments as 2017 will see this segment of upstream become profitable once again thanks to cost cuts. Related: Trump’s Oil Price Dilemma

Overall capex in the energy industry, however, is set to increase in 2017, according to a BMI Research report from September.

(Click to enlarge)

A recent Wood Mackenzie report is also optimistic on capex, with the analysts noting that the cost cuts implemented by the industry have brought down by half the cash-flow positive breakeven point. This means, that 2017 will be the first year since 2014 that will see many oil and gas players become cash flow positive.

All in all, there seems to be a consensus among analysts that 2016 saw the bottom of the depressed stage of the industry cycle and from now on things will start looking up, with the first marked improvements in performance to be noticed in 2018.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Craig Ferrell on December 21 2016 said:
    Dear Ms. Slav,

    Table 4a, of EIA Dec. '16 STEO you link, shows domestic production in "Lower 48 States (excl GOM)", a proxy for "shale production", as a projected 6.76 MM barrels for '16 and 6.49 MM for '17 (far right columns). This is a REDUCTION of 270k, not the 100k you reference in the article.

    The quarterly progression in that row is fascinating, especially in light of rig count data... From May 27 to Dec. 16 we have added 194 oil rigs, yet the shale production has DECREASED from 6.78 MM in Q2 '16 to 6.65 in Q3 to 6.54 Q4, and est. further declines to Q2 '17. Appears shale "spigot" is challenged filling own depletion rate, so how will it fill in for OPEC in 1H '17?

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News