US shale rebound impacts on production cuts – OPEC

LONDON (ICIS)–Higher crude oil prices are helping US shale producers increase their output, prompting OPEC on Monday to raise concerns that its own output cut is not helping lift prices further.

OPEC members agreed in November to cut its output by 1.2m bbl/day, from 1 January, while another 11 non-OPEC countries including Russia agreed in December to cut their own output by 600,000 bbl/day.

The agreement lifted crude prices at the time, although gains of around $10/bbl have stabilised with values in the mid-$50s/bbl for most of January and February to date.

On Monday 12:00 GMT, the international referential crude Brent for deliveries in Abril was trading at $56.40/bbl, while the US referential West Texas Intermediate (WTI) for delivery in March was trading at $53.58/bbl.

“Crude futures drew some support [in January] from a weaker US dollar and early signs of tightening supplies, supported by the latest OPEC production data which showed a sizable decline in output in December and early January,” said OPEC.

“Yet, gains remained capped on worries over continued excess supply due to a potential rebound in US shale drilling in response to higher prices.”

OPEC’s worries came backed by the US’ Energy Information Agency (EIA) forecasts expecting that the country’s tight oil output in February from major shale basins will rise to 4.75m bbl/day, up from just 41,000 bbl/day in January.

The International Energy Agency (IEA) also said 10 February that despite a fall in crude oil supplies during January on the back of output cuts, prices were kept steady as the global stocks remained at historic highs.

In a more positive tone, OPEC also forecasted, like the IEA had done before it, that crude oil demand will rise in 2017, compared to 2016, on the back of better-than-expected economic performances in Europe and Asia.

While the IEA said crude growth demand will stand at 1.4m bbl/day, OPEC’s figure stood at 1.32m bbl/day, after it adjusted its figure up by 70,000 tonnes/day.

The main factors behind the more crude demand in 2017 will be transport fuels and petrochemicals demand, which will boost feedstocks like liquefied petroleum gases (LPG), natural gas liquids (NGL) and naphtha, especially in China and India, said OPEC.

“Several assumptions have been considered in 2017 projections. Firstly, global economic activities are anticipated to rise by around 3.2% with economic development in the OECD region rising solidly above 2016 levels,” said OPEC.

“Secondly, road transportation is anticipated to continue to be the driving factor for oil demand growth in 2017, primarily as a result of anticipated high vehicle sales in the US, Europe, China and India. Thirdly, the expanding petrochemical sectors in US and China are projected to lend support to petrochemical feedstocks.”

On the negative side, however, OPEC conceded many other forces are working against consumption of crude oil – among others, efficiencies in transport thanks to “technological advancements” as well as reductions in subsidies in a number of countries.

Pictured above: Crude oil pumped in the Bakken shale formation in US’ Dakota
Source: imageBROKER/REX/Shutterstock