• 9 mins Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 6 hours Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 11 hours British Utility Companies Brace For Major Reforms
  • 15 hours Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 17 hours Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 18 hours Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 19 hours OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 20 hours London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 21 hours Rosneft Signs $400M Deal With Kurdistan
  • 24 hours Kinder Morgan Warns About Trans Mountain Delays
  • 1 day India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 1 day Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 2 days Russia, Saudis Team Up To Boost Fracking Tech
  • 2 days Conflicting News Spurs Doubt On Aramco IPO
  • 2 days Exxon Starts Production At New Refinery In Texas
  • 2 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 3 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 3 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 3 days China To Take 5% Of Rosneft’s Output In New Deal
  • 3 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 3 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 3 days VW Fails To Secure Critical Commodity For EVs
  • 3 days Enbridge Pipeline Expansion Finally Approved
  • 3 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 3 days OPEC Oil Deal Compliance Falls To 86%
  • 4 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 4 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 4 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 4 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 4 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 4 days Aramco Says No Plans To Shelve IPO
  • 6 days Trump Passes Iran Nuclear Deal Back to Congress
  • 7 days Texas Shutters More Coal-Fired Plants
  • 7 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 7 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 7 days Chevron Quits Australian Deepwater Oil Exploration
  • 7 days Europe Braces For End Of Iran Nuclear Deal
  • 7 days Renewable Energy Startup Powering Native American Protest Camp
  • 8 days Husky Energy Set To Restart Pipeline
  • 8 days Russia, Morocco Sign String Of Energy And Military Deals
Alt Text

The U.S. Shale Play To Watch In 2018

The original U.S. shale gas…

Alt Text

Aggressive OPEC Pushes Oil Prices Up

Oil prices are once again…

Alt Text

This Key Data Points At Strong U.S. Oil Demand

U.S. Gasoline prices haven’t risen…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

OPEC Out Of Moves As Goldman Sachs Expects Another Oil Glut In 2018


Oil prices are heading down again on swelling U.S. crude oil inventories, with Brent dropping below $50 per barrel for the first time this year.

The OPEC deal that has taken more than 1 million barrels per day of oil off the market has not succeeded in reversing this bearish trend for inventories. And with the deal at its midway point, focus is shifting towards an extension of the cuts through the end of the year.

But OPEC’s usual strategy of jawboning the market back up ahead of these negotiations seems to be wearing thin amid record high crude oil inventories. "OPEC has used up most of its arsenal of verbal weapons to support the market. One hundred percent compliance by all is the only tool they have left and on that account they are struggling," said Ole Hansen, head of commodity strategy at Saxo Bank.

"OPEC's market intervention has not yet resulted in significant visible inventory drawdowns, and the financial markets have lost patience," investment bank Jefferies said in a research note.

Although projections from Wall Street banks tend to vary quite a bit, there is a growing chorus warning about another slide in crude prices. At this point, the big variable is whether or not OPEC decides to extend the deal when it meets in May – an extension would likely stabilize prices and might even push them back up into the mid-$50s or higher. No extension and oil could fall much further into the $40s. Related: The Oil Market Is At A Major Turning Point

Looking out a bit further, things get much more complicated. Even if the supply/demand imbalance is taking a long time to correct itself, rising demand and tepid supply growth suggest that the glut will ease over time. At least that is the general consensus.

However, Goldman Sachs warns that another downturn could come over the next three years, sparked by a new wave of supply stemming from megaprojects planned years ago. These projects cost billions of dollars and take many years to bring online, and many of them were initiated back when oil prices traded at $100 per barrel.

“2017-19 is likely to see the largest increase in mega projects production in history, as the record 2011-13 capex commitment yields fruit,” Goldman said in a note. “This long-lead-time wave of projects and a short-cycle revival, led by U.S. shales, could create a material oversupply in 2018-19.”

Goldman identified a handful of projects in Brazil, Russia, Canada and the Gulf of Mexico that will reach completion and add to global supply between 2017 and 2019. Combined with new shale output, these projects could add another 1 million barrels per day next year.

The investment bank also warned that the markets have become overly optimistic on oil prices since the OPEC deal was announced nearly four months ago. It’s not hard to see why. OPEC’s production cuts in November ushered in several months of unusual stability in prices, ended a three-year run of spectacular volatility. It also sparked widespread confidence in a price floor – with the cuts coming, oil prices likely wouldn’t fall much in the near run, market analysts concluded, and over the longer-term, they would slowly move up towards $60 per barrel.

As a result, U.S. credit markets warmed up to new drilling again, and not surprisingly, spending and drilling activity are already on the rise. But Goldman says that shale output could come in higher than expected this year, disappointing those expecting higher prices.

Most European integrated companies are using a working assumption for their budgets that oil prices will average $60 per barrel in 2017, with an upper end bound of $80 per barrel between 2018 and 2020. That stands in sharp contrast to Goldman’s projections of oversupply for the next three years. Related: Oil Has Room To Fall As Speculators Bail On Bullish Bets

In short, we have a situation in which shale output is surging too quickly, before OPEC has had the chance to balance the market. On top of that, production from yesteryear’s megaprojects will soon come online, exacerbating the glut. The only thing that will prevent another downturn in prices would be an extension of the OPEC cuts, but as Goldman points out, the group has to “weigh the relative benefit of stability (extend the cut) vs. the risk of long-term share loss.”

OPEC has been burned before when it tried to cut back, losing market share without a corresponding increase in prices. So far in 2017, the same thing is occurring. That might make OPEC members think twice about continuing to shoulder the burden for the global market, ceding market share to shale companies already on a spending spree. It’s not clear how this will shake out, but it’s safe to say that, at this point, there is more danger on the downside for oil prices than on the upside.

By Nick Cunningham, Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • Ness on March 23 2017 said:
    Points that people like nik don't write about. The mega projects in the gulf and north slope Alaska are already coming on line. Shale production is actually flat overall since June. It's Gulf of Mexico and north slope causing the increases. Eventually those mega projects all come on line and natural depletion starts kicking in. Off shore oil is 3.2 million barrels a day per year on average. So you need an awful lot of mega projects coming on line just to keep up. Eventually those run out and then it's all up to shale and OPEC.
  • Matthew Biddick on March 23 2017 said:
    I just don't get the whole "market share" argument. Currently, OPEC's target is something around 32 mmbopd. Let's see, OPEC can sell 33 mmbopd at $40/b, or less ($1.32B), or perhaps 30 mmbopd at $60/b ($1.8B), or even better, 28 mmbopd at $75/b, or better ($2.1B). Who gives a rat's about market share when "dollar share" is the obvious choice. Am I missing something?

    I'll say it again, the American shale revolution has a limited life span. I'll pull a number out of thin air and say 20 years.
  • JustMeNS on March 23 2017 said:
    This article would have credibility if it published decline rates against new production. We have decline rates of around 5% per year which is about 5,000,000 BPD. We need to bring into production this amount every year just to tread water let alone supply the expected growth of 1,000,000 BPD of additional demand. From what I have read, the expected new production from Brazil, Canadian Oil Sands, etc. will not meet this decline rate let alone the new demand.
    Articles like these add no knowledge and are headline grabbing for the sake of headline grabbing. Sad.
  • TM on March 23 2017 said:
    Matthew: The shale revolution is here to stay, mainly because it's not just an american thing. There are other countries where the new extraction methods can be applied (Argentina, Russia...) and they'll probably start their own shale production at some point. The oil industry and the energy industry as a whole has changed, and it's time to accept this is the new normal and try to survive in it. Everything else is just wishful thinking, no matter how much you try to justify it with figures.
  • petergrt on March 23 2017 said:
    When it comes to shale oil, US is not the only game.

    Argentina and Russia each have more of it than the US, and they are bigging to exploit it. The Russians are already producing some.

    From Financial Times:
    "At 75bn barrels, Russia’s enormous Bazhenov formation in Siberia is estimated by the US Department of Energy to be the single largest deposit of shale oil in the world."

    It does not require a 'mega-project' to ramp up production, albeit there is a need for some infrastructure, but its all on land . . . .

    The bottom line is that time is running out for OPEC, and with the Peak-Oil around the corner, they will have to protect their market for the only thing they have to sell.
  • Matthew Biddick on March 24 2017 said:
    Russian shale? It's hard enough to make money on shale (I'm not talking about flipping acreage) in the US where the business/legal climate is pretty much straight up, discounting the regulatory factors. Russian oil business is known for its corruption and anything "oil" is going to cost extra, know what I mean?

    There are over 700 rigs drilling in the US, almost all of which are drilling horizontally. Very little vertical work going on these days. According to Baker Hughes, there are just over 100 rigs drilling in all of Europe, which I assume would include Russia. To accomplish in Russia what the US has accomplished in developing oil/gas from shale looks highly unlikely to me. To get to that point with their infrastructure is way beyond a "moon shot". Ditto almost any other country in the world.
  • John Brown on March 24 2017 said:
    There is a glut of oil sloshing around the world, and it hasn't gone away. The OPEC deal never removed the glut, although with everyone in the industry and out pushing for prices to go higher it gave them the news to do that even while oil was sloshing around everywhere. Of course the higher prices also spurred increased U.S. production which now comes back on in months not years. Of course the industry still wants $60 plus oil, as do the banks etc so they'll keep trying, but there is NO REASON for oil to be above $30 a barrel now, or a year from now, or a year after that, and everybody knows it.

Leave a comment

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