• 6 minutes Can the World Survive without Saudi Oil?
  • 10 minutes Saudis Threaten Retaliation If Sanctions are Imposed
  • 15 minutes Closing the circle around Saudi Arabia: Where did Khashoggi disappear?
  • 1 hour U.N. About Climate Change: World Must Take 'Unprecedented' Steps To Avert Worst Effects
  • 52 mins Saudis Pull Hyperloop Funding As Branson Temporarily Cuts Ties With The Kingdom
  • 4 hours WTI @ $75.75, headed for $64 - 67
  • 9 hours How High Can Oil Prices Rise? (Part 2 of my previous thread)
  • 9 hours UN Report Suggests USD $240 Per Gallon Gasoline Tax to Fight Global Warming
  • 12 hours EU to Splash Billions on Battery Factories
  • 14 mins U.S. - Saudi Arabia: President Trump Says Saudi Arabia's King Wouldn't Survive "Two Weeks" Without U.S. Backing
  • 9 hours China Thirsty for Canadian Crude
  • 11 hours Iranian Sanctions - What Are The Facts?
  • 14 hours Dow logs 830-point loss
  • 11 hours Two Koreas: U.N. Command Wrap Up First Talks On Disarming Border
  • 10 hours Shell, partners approve huge $31 billion LNG Canada project. How long till Canadian Federal government Environmentalates it into the ground?
  • 11 hours Threat: Iran warns U.S, Israel to expect a 'devastating' revenge
Alt Text

Fear Has Driven Oil Prices Too High

The calls for $100 oil…

Alt Text

Oil Experts Divided As Iran Sanctions Loom

The world’s top oil trading…

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

Trending Discussions

Shale Bottlenecks Could Send Oil Prices Higher

Permian

Amid reports that OPEC will likely decide to start easing production quotas after June 22 and an IEA forecast that electric vehicles will displace 2.5 million bpd in crude oil demand by 2030, some analysts remain upbeat about the future of oil prices, citing transport constraints in the U.S. shale patch as well as companies’ prioritization of returning cash to shareholders over investing in new production.

CNBC recently quoted one such analyst, Tamar Essner from Nasdaq Corporate Solutions, as saying I think it's temporary. I think the fundamental picture is still really strong. The market's getting a bit dislocated right now based on a risk-off sentiment." Essner went on to note the 500,000-bpd fall in production in Venezuela and speculated that it could fall by another half a million barrels daily by end-2018. If this happens, he said, U.S. shale drillers would not be able to ramp up production quickly enough to meet growing demand.

Indeed, Venezuelan production has been sliding inexorably, and chances are that it will continue to fall until the year’s end, at least. However, U.S. drillers have increased their daily production since the start of the year by 1.28 million bpd already, if we are to believe EIA’s weekly production estimates and monthly reports, which have historically proven to be quite accurate.

So, that’s 1.28 million bpd more over five months. Even if the EIA is erring on the positive side, the increase in U.S. production could be around 1 million barrels daily, which would be enough to offset a Venezuelan production decline of the same proportions.

But, say bullish analysts like Essner, U.S. drillers have already hedged their production at lower prices, so they won’t see as much cash coming in as they would have otherwise. Also, they have made their capex plans based on cheaper oil. True as this may be, again, if we are to believe EIA figures, drillers are drilling more and pumping more oil. The situation is a bit paradoxical.

Related: Oil Prices Could Bounce Back On Geopolitical Risk

On the one hand, there is a looming shortage of workers—because of the higher production levels—as well as investors demanding cash instead of more production. There are also the pipeline bottlenecks in the Permian forcing drillers there to sell their crude at a discount.

On the other hand, production is growing. This growth may be unsustainable over the long term as shale skeptics like to remind us, but for now, it is growing consistently and this is keeping a cap on prices.

Besides, it’s not just the U.S. that is producing more. Canada is also pumping more crude, although, in truth, most of this crude goes to U.S. refineries and at a huge discount, so Canadian crude production patterns are not as significant for international markets as U.S. patterns. Brazil is also producing more… and Rosneft just said today it has upped its production by 70,000 bpd just to see how quickly it could return to pre-deal daily rates, it said.

That’s an increase of 70,000 bpd in three days, and the Russian state mammoth has spare capacity of 120,000-150,000 bpd. And Rosneft is just one producer in one participant in the OPEC+ deal. The total spare capacity OPEC and its partners have is well over a million barrels, even if we exclude Venezuela, which is in no position to reverse the production decline at will like the rest of the group.

So, even if U.S. shale drillers are suffering from pipeline bottlenecks, worker shortages, and investor demands for higher returns, there is production capacity around the world to respond to rising demand. And let’s remember that this rising demand is only forecast. It has not yet become a fact. So, things can change, and not jut because of EVs. There are many more factors than can swing oil demand one way or the other.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




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