The year in which WTI went from barely above $50 to over $60 a barrel and Brent hit OPEC’s much sought after $65 was full of the usual mix of price forecasts, warnings, and unpredictable events that left readers wondering what will happen next…
Here are five of Oilprice.com’s most popular stories from 2017 as we look back on an eventful year.
Now in its second year, the OPEC/Russia oil production cut pact was the number-one headline maker of 2017. After the initial praise—and price spike—doubts began to emerge that the deal might not work as there was a strong likelihood that some members may cheat. Very soon, other doubts overshadowed these: U.S. shale production was growing, and it was growing fast.
Despite OPEC publicly dismissing shale production growth as hype, by the end of the year it was crystal clear that if there was anything threatening the success of the pact, it was U.S. shale. This threat still looms, even though the U.S. shale industry has been warned that it would be wise to slow down the pace of its rig count growth. Ultimately though, it will be the three years of record-low exploration investment that tightens markets rather than this battle.
This may come as a surprise to readers, as the Permian occupied the spotlight for most of the year, but the June drilling productivity report by the EIA revealed that the Powder River Basin could challenge the Permian’s star status. Shale dominated headlines in 2017, so anything about shale, be it problems or achievements, was top news.
The PRB is in the Bakken play, which the EIA’s 2016 forecast declared would become the largest tight oil and gas source in the United States. At the end of 2017, the Bakken was still lagging behind the Permian in terms of production growth, where production in December soared by 68,000 bpd, but it ranked second, with production growing by 9,000 bpd.
While the first half of the year was relatively quiet geopolitically—with most of the non-industry news focused on pipeline blasts in Nigeria (again) or field/pipeline blockades in Libya—June brought us the Qatar blockade, courtesy of its Arab neighbors who alleged that Qatar had funded terrorism and was too cozy with Iran.
Qatar refused to bow to the demands of the Saudi Arabia-led group, and the blockade continues to this day, although no fresh demands have been made and the emirate has found ways around the restrictions.
Many saw the blockade as Saudi Arabia attempting to spark another regional conflict as a way to reassert its place as the regional hegemon, but if that was the purpose, then this attempt was a failed one and, some argued, actually strengthened Iran’s influence. Prices, meanwhile, went up, unevenly—but consistently.
Prices were rising, but not fast enough for OPEC. China, on the other hand, became the world’s top consumer of crude oil and broke all records for oil imports. A lot of this oil, some analysts suggested, was going into the country’s strategic oil reserves—a deeply mysterious collection of tanks and underground caverns that has been torturing the imagination of analysts and traders alike.
China doesn’t publish any figures for its oil reserves, and everyone interested in their level is forced to guess, or thanks to technology, can take advantage of satellite images that can be used to estimate the approximate level of oil in the tanks based on the shadows they throw.
What led some oil analysts to crown China the new king of oil prices was the possibility that at some point, if international oil prices grew too high, China could decide to dump part of the reserve on the market. That possibility remains.
Most news coming from the shale patch was upbeat, but here and there, expert voices started warning that not all is as good as it is reported to be. These voices are multiplying, as is bound to happen when there is too much positive coverage of any topic.
In December, Rystad Energy warned that the production figures that made shale oil the star that it is are mostly initial production rates that decline very quickly despite the longer laterals and more efficient drilling that have been cited as essential factors in shale’s victory over OPEC.
There have also been reports that some wells are becoming too long and pumps are having a difficult time recovering enough oil. Then there was an interview with Harold Hamm, who said that the EIA has actually been overestimating crude oil production in the shale patch. Meanwhile, shareholders in shale companies have been getting angry about the lack of profits, calling on the drillers to stop thinking about production growth alone and instead, give some thought to profits.
Still, last year was a good one for oil in the U.S., and although it probably wasn’t as good for OPEC for the most part, it did manage to end on a positive note overall: global inventories are falling and demand is growing—if we are to trust analysts, that is.
By Irina Slav for Oilprice.com
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