Quick-to-pump US shale oil will be able to fill any gap in global oil supplies caused by a OPEC-led cutback in its production.
As a result of this analysis, London-based Edison Investment Research has reduced its five-year future forecast price of crude oil by more than 14%.
Edison oil analyst Will Forbes, explained: “The oil sector is firmly in a new cycle, with a dramatically lower cost profile across the industry.
“Inventories in the US remain at elevated levels (only just below last year’s record levels).
“Although demand growth is steady, the production growth from the US shales alone is seen to be enough to provide for this growth from (2Q17-2Q18), with OPEC playing a role as the swing producer to cover seasonal variation.
“The market agrees, and the forward curve has progressively lowered and flattened over the last 18 months.
“As a result, we lower our long-term oil price assumption to $70-barrel for 2022 (equivalent to $60-barrel real in 2016). Our previous assumption was $70-barrel real in 2016.
The IEA forecasts demand to be relatively robust in the coming 12-18 months, growing by 1.41 mmb/d 2017-2018 (or 1.4%) driven by Asia.
Between 2017 and 2018, the growth in supply will overwhelmingly come from the US, with 1.1 mmb/d (of the 1.4 mmb/d demand growth) accounted for by the OECD Americas with other (non-OPEC) sources supplying 0.3mmb/d.
As a result, to balance the market, the IEA forecasts that the call on OPEC will fall by 0.1 mmb/d.
Forbes added: “These estimates put a stress on the performance of the US shales, which are that much more elastic to pricing over much shorter timelines than conventional production.
“Edison analysis indicates the shales are well capable of delivering this increase, even if the rig count falls as much as 20%.
“Our analysis indicates that very substantial reductions in both rig count and productivity per rig would have to occur for US shale production not to grow by over 500 mmb/d over the next 12 months.”
10 Aug 2017