Oil prices capped at US$65 as U.S. shale output gathers pace

Angelo Anderson
March 9, 2018

The organisation says over the next three years, gains from the United States alone will cover four-fifths of global demand growth for oil, with Canada, Brazil and Norway able to cover the remainder.

At CERAWeek 2018, a top gathering of energy industry and policy leaders, the head of the IEA said USA shale will affect everyone, not just OPEC.

USA shale oil output is set to surge over the next five years as drillers recover rapidly from a three-year slump, the International Energy Agency said on Monday, sharply upgrading its previous growth forecasts. Rising global oil demand has so far absorbed the extra USA crude barrels, limiting the impact on prices. The continuous investment is essential because the world is losing about 3 million barrels each year due to the aging of oil fields.

With total U.S. liquids production set to reach almost 17 million barrels per day in 2023, the USA will be recorded as the world's top oil liquids producer.

In total, the world is expected to add 1.4 million bpd in new petrochemical-producing steam crackers to 2023, the IEA said. Growth is led by the Permian Basin, where output is expected to double by 2023.

By restraining production, OPEC and its allies have succeeded in eliminating excess oil stocks and accelerating the recovery in prices, but they are paying an increasingly high price in terms of market share. Because of investments in pipelines and other infrastructure to ease the current bottlenecks, domestic crude export capacity is forecast to hit almost 5 million b/d by 2020.

Over the short-run, prices are likely to be influenced by the direction of the U.S. Dollar, concerns over increasing U.S. production and worries about adherence to OPEC's plan to limit supply.

Meanwhile, gasoline stocks fell by 788,000 barrels, a smaller decline than the 1.2 million barrel drop forecast by analysts in a Reuters poll.

The OPEC itself will experience difficulties in starting a new production.

The International Energy Agency believes slow growth from OPEC will be offset by oilfields in the U.S.

"Upstream investment may be inadequate to avoid a significant squeeze of the global spare capacity cushion by 2023", it said in a report released Monday.

It is in this context of confusion that the United States needs to consider the dangers of altering a suite of energy policies that are working. They said that the U.S. shale oil output is to surge over the next 5 years, stealing market share from OPEC producers, and moving the United States closer to self-sufficiency.

Economic growth in Asia and a resurgent US petrochemicals industry should lead to a 6.9 million b/d increase in oil demand by 2023 to 104.7 million b/d, according to the IEA.

Demand for ethane will expand at the fastest pace in the next five years, rising by 885,000 bpd, followed by naphtha with growth of 495,000 bpd and LPG with growth of 40,000 bpd, it forecast. In a world where peak oil demand is being mooted, will "the shareholder" (eg ruling royal governments) order national oil companies to spend billions of dollars to develop new spare capacity, even if it could not be needed?

The energy agency, which advises energy-consuming countries, said Monday that global energy demand will grow about 7 percent by 2023, to 104.7 million barrels of oil per day. USA shale's capacity to surprise to the upside is likely to leave OPEC producers with some soul searching to do as they consider their strategy for the second half of the year and beyond.

While these estimates are subject to revision, the March data shouldn't change dramatically given any cargo due to be offloaded in Asia this month would have to have left a USA port by now, or at least within the next day or so.

"The United States will dominate the global oil markets over the next five years", says IEA Executive Director, Fatih Birol.

Other reports by Iphone Fresh

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