Why rising US shale production keeps pressure on crude prices – Opec


US shale oil output is growing at a faster than expected rate, keeping pressure on prices despite steep supply curbs from some of the world’s biggest producers, Opec said in its monthly market report on Thursday.

Despite countries inside the cartel and outside, such as Russia, making big cuts to output as part of a deal agreed late last year, global excess inventories remain stubbornly high, the group’s research arm said.

“Oil futures on both sides of the Atlantic recovered [month-on-month], but their upward potential is still limited by a resurgence of shale and other oil output,” the research arm of the producers’ group said.

High compliance levels with the supply cut deal – with an aim to reduce output by 1.8m b/d – has been met with a resurgence in the US shale industry, keeping prices within a tight range. The group revised higher total 2017 crude output from outside the cartel by around 370,000, driven by greater than anticipated US production. Non-Opec output is expected at 58.2m barrels a day.

“US oil and gas companies have already stepped up activities in 2017 as they start to increase their spending amid a recovery in oil prices,” Opec said. Total US liquids production is forecast to increase by 820,000 b/d with crude oil making up the bulk of the rise.

In addition to the growth in the US, higher oil production is expected in Canada and Brazil. Due to higher than initially forecast output from these countries, Opec trimmed its demand expectations for the cartel’s crude in 2017 to 31.9m b/d, which is around 320,000 b/d lower than the previous month.

As it is more than current total Opec production – close to 31.7m b/d, according to estimates from consultants and energy analysts submitted to the cartel – this suggests stockpiles will still drop if output does not rise further. The production estimate includes those countries exempt from the supply cut deal such as Libya and Nigeria whose output has been volatile.

The secondary source data showed production by Opec kingpin Saudi Arabia – which has led cuts this year – rose marginally in April but was still below 10m b/d.

Opec said while commercial oil stocks in industrialised nations fell in March to just over 3bn barrels it is still just under 10 per cent above five-year average levels – one target of the Opec-led cuts.

It is expected the cuts deal will be extended past the first six months of 2017 when the cartel’s ministers meet in Vienna later this month.

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