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IEA: $65-70 Oil Could Cause Surge In U.S. Shale Production

Midland

Oil producers may be enjoying oil prices at $65 to $70, but these price levels are likely to encourage even more oversupply from U.S. shale, Fatih Birol, the Executive Director of the International Energy Agency (IEA), said at an industry event on Friday.

For most of 2017, the resurgence of U.S. crude oil production was capping price gains and offset part of the production cuts that OPEC and its Russia-led non-OPEC partners have been implementing since January last year. This year also started with the OPEC vs. shale tug-of-war, although in the first two weeks of 2018, geopolitical risks and declining inventories trumped concerns over the rise in U.S. shale, and supported oil prices and sent Brent briefly breaking above $70 a barrel on Thursday.

U.S. shale is expected to continue to counteract OPEC production cuts this year. EIA’s latest Short-Term Energy Outlook (STEO) from earlier this week estimated that U.S. crude oil production averaged 9.3 million bpd in the whole of 2017, and 9.9 million bpd in December alone. This year, U.S. crude oil production is seen averaging 10.3 million bpd in 2018, beating a record dating back to 1970. For 2019, EIA expects U.S. production to increase to an average of 10.8 million bpd, and to surpass 11 million bpd in November next year.

The Paris-based IEA, for its part, said in its latest Oil Market Report from December that “On considering the final component in the balance - non-OPEC production - we see that 2018 might not be quite so happy for OPEC producers.”

The IEA warned that mostly due to U.S. shale, total supply growth could exceed demand growth.

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Oil prices are currently at levels at which U.S. production could substantially increase. According to the Q4 Dallas Fed Energy Survey published at end-December, 42 percent of executives at 132 oil and gas firms expect the U.S. oil rig count to substantially increase if WTI prices are between $61 and $65 a barrel. 

At 08:53 a.m. EST on Friday, WTI Crude was down 0.44 percent at $63.26, and Brent Crude was down 0.14 percent at $68.89, as investors were awaiting U.S. President Trump’s decision on Iran and Baker Hughes rig count data.

By Tsvetana Paraskova for Oilprice.com

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  • Disgruntled on January 15 2018 said:
    It's nice to know that "42 percent of executives at 132 oil and gas firms expect the U.S. oil rig count to substantially increase if WTI prices are between $61 and $65 a barrel." I hope that those same executives at all 132 of those companies can think this through and realize that if that happens they'll be staring $40/b oil right in the face again sooner rather than later. It is much better to sell less oil for more than more oil for less. And they won't be sacrificing their best acreage for virtually nothing. Seems pretty basic to me, but then, I'm not in debt up to my eyeballs.
  • Mamdouh G Salameh on January 13 2018 said:
    The International Energy Agency (IEA) should know better before they give statements damning the rise in the oil price.

    The continued rise in the oil price since December 2017 is mostly motivated by rising global demand for oil and by the fact that the market is now approaching re-balancing. While geopolitical developments impact every now and then on the oil price, their effect this time is negligible.

    The oil price is heading towards $70/barrel or higher in 2018. No announcements by the US Energy Information Administration (EIA) and the IEA about increases in shale oil production could deter its surge.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Profssor of Energy Economics at ESCP Europe Business School
  • Mr. Slappapi on January 12 2018 said:
    A 4.57% percent increase in price for the week. No big news, just traders taking profits.
  • Kr55 on January 12 2018 said:
    Can't trust the IEA or OPEC. Both have agendas on opposite sides of the spectrum. And now their are in a direct wizzing contest with each other.

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