• 1 day PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 1 day Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 1 day Syrian Rebels Relinquish Control Of Major Gas Field
  • 2 days Schlumberger Warns Of Moderating Investment In North America
  • 2 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 2 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 2 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 2 days New Video Game Targets Oil Infrastructure
  • 2 days Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 3 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 3 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 3 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 3 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 3 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 days Russia, Saudis Team Up To Boost Fracking Tech
  • 4 days Conflicting News Spurs Doubt On Aramco IPO
  • 4 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 5 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 5 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 5 days China To Take 5% Of Rosneft’s Output In New Deal
  • 5 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 5 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 5 days VW Fails To Secure Critical Commodity For EVs
  • 5 days Enbridge Pipeline Expansion Finally Approved
  • 5 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 6 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 6 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 6 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 6 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Alt Text

The Next Big Digital Disruption In Energy

Blockchain technology is transforming the…

Alt Text

What’s Stopping An Oil Price Rally?

Oil prices rallied in Q3…

Alt Text

Are Combustion Engines Reaching Peak Demand?

As countries announce plans to…

Can U.S. Shale Add 1 Million Bpd In 2017?

Rigs

Oil prices are up on expectations that OPEC will contribute to a faster balancing in 2017, with up to 1.8 million barrels per day in cuts along with some non-OPEC countries. That has put a floor beneath prices, with fears of another downturn largely dissolved after OPEC’s announcement.

But what if U.S. shale comes roaring back and ruins the price rally? Estimates run the gamut on how quickly U.S. shale production can rebound and by what magnitude. Citigroup sees output rebounding by 500,000 barrels per day if oil prices average $60 per barrel. A December 12 report from Macquarie said that oil prices above $60 could spark a 1 million barrel-per-day revival.

U.S. shale is already up about 300,000 barrels per day from a low point in the summer of 2016, at least according to preliminary data. The gains are expected to continue. The industry is producing about as much oil as it was two years ago, with only one-third of the more than 1,700 rigs in 2014. Drillers are producing just as much oil with a lot less effort.

If U.S. shale surges back by 1 mb/d as Macquarie suggests, it would offset most of the cuts from OPEC and non-OPEC countries. Additionally, one would have to assume some degree of non-compliance and/or “cheating” on the cuts from participating countries, plus an expected increase in supply from Libya and Nigeria. Altogether, a rise in oil prices could be self-defeating, leading to prices falling once again later in the year. Related: Oil Price Roulette: Investors Bet On $100 Oil

Then there are also the implications on oil demand to consider. Higher prices might cut into demand growth, leading to an expansion in consumption at a much slower rate. The IEA already thinks oil demand will grow by 1.3 million barrels per day in 2017, one of the weakest in years. An initial price spike might throw off those figures, causing estimates to end up being more optimistic than reality. Again, a price surge could be self-defeating, causing prices to fall right back down.

Bloomberg conducted a survey of 24 oil analysts, finding expectations averaging $53 per barrel in the first quarter and $56 per barrel in the second quarter. For the full-year, the survey calls for oil prices averaging $58 per barrel for 2017.

By Charles Kennedy of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Kr55 on December 27 2016 said:
    Is shale really up 300k? EIA has never put in their on-shore productivity reports those kinds of gains. My understanding is that 4 off-shore mega projects came online in the last part of 2016, and likely almost all the production gains we've seen came from those. These projects were known to be coming online for years and were planned before oil crashed. They are some of the last big off-shore projects that will be coming online in the gulf for many years now. Nothing unexpected about them.
  • Armando on December 28 2016 said:
    Well, if you strongly beleive that, then by all means short the oil, you can make tons of money, you will see it before year end 2017.
  • Craig Woerpel on December 28 2016 said:
    "Drillers are producing just as much oil with a lot less effort." If the rig count suddenly went to 0, we would still be producing just as much oil. For a time. The author, and many investors, ignore the decline curve at their peril.
  • AlexS on December 28 2016 said:
    "U.S. shale is already up about 300,000 barrels per day from a low point in the summer of 2016"

    According to the EIA's most recent report, U.S. tight oil production was 3.97 million barrels per day in October 2016, down 69,000 barrels/day from September and 680,000 barrels/day from the record high in March 2015.
    October 2016 was the lowest point since June 2014.

    http://www.eia.gov/energy_in_brief/article/shale_in_the_united_states.cfm#tightoil

    - "A December 12 report from Macquarie said that oil prices above $60 could spark a 1 million barrel-per-day revival."

    I haven't seen this report from Macquarie, but I'm sure they are not projecting year-on-year growth of 1 mb/d in U.S. tight oil production in 2017. Even with continuing growth in U.S. oil rig count and accelerating completion of the DUCs (drilled but uncompleted wells), tight oil output is unlikely to return to growth until the second quarter of 2017. And year-average production will be flat or only slightly higher than in 2016.
    Even most optimistic forecasters, such as Rystad Energy, are projecting return to ~1 mb/d growth in U.S. tight oil production not before 2018. By that time, the global oil market will be largely rebalanced thanks to continuing growth in demand and OPEC-non-OPEC supply cuts (even if these are implemented only partially).


    "The IEA already thinks oil demand will grow by 1.3 million barrels per day in 2017, one of the weakest in years."

    According to the IEA statistics, annual average growth in global oil demand was 1.17 million barrels per day in 2000-2015. Hence, projected growth of 1.4 mb/d in 2016 and 1.3 mb/d in 2017 is above long-term trend. Furthermore, the IEA, EIA, OPEC and other forecasting agencies have been constantly increasing their demand projections for 2016 and 2017.
  • Craig Ferrell on December 28 2016 said:
    Kr55 is right to be skeptical of this "supposed 300k shale add" in 2016. Unfortunately, the weekly data set from the EIA only breaks out "Alaska" versus "Lower 48" for production totals. You have to wait for the monthly STEO for the breakout of GOM (Gulf of Mexico) from Lower 48. Its row titled "Lower 48 (excl GOM)" is a close proxy for domestic shale production (see Table 4a).

    http://www.eia.gov/beta/steo/#/?v=9&f=M&s=&start=201201&end=201712&linechart=COPRPUS&ctype=linechart&maptype=0&id=
    Since June, GOM has gone from an actual 1.54MM to a proj. 1.78MM for Dec. (that's +240K), whereas "shale" has gone from 6.70MM in June to 6.52MM for Dec. (that's -180K, w/+200 rigs)
  • Craig Ferrell on December 28 2016 said:
    A Bloomberg article today provides some context on current credit availability to US E&P...

    "Every six months, oil and gas producers negotiate credit with banks based on the value of reserves in the ground. Through the latest round of talks in the fall, 34 companies had their available credit lines raised an average of about 5 percent, or more than $1.3 billion, according to data compiled by Reuters."

    Can shale really increase production by 1MM BBLs/day with only $1.3BN more in capex spent?

    No. By the time the spring re-evaluation is done, the first round of OPEC cuts will be in the books.

Leave a comment




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