OPEC expands its control over the oil markets with the halt in the growth of oil shale

After a decade of exponential growth, the US shale patch is no longer the swing product in global markets. That role has now returned to OPEC and its largest and most influential members in the Middle East, say industry analysts and executives.

From a growth of more than 1 million barrels per day in oil production annually before the pandemic hit demand in 2020, the US is now poised to see growth at half that, at best, this year. Although most of the growth is and will come from the shale patch, the pace of production increases has slowed, and some analysts have recently called for peak shale production coming as early as 2024.

A number of factors have combined in recent months to influence the growth of US shale oil production – from capital discipline to labor shortages, from lack of external capital to cost inflation and high interest rates, from stressful prime sites to drilling to sharper declines in oil prices. Well productivity over time.

US shale growth is disappointing

Analysts say that US shale oil will continue to grow, even at lower rates. But the Permian won’t be the global swing producer it was before 2020 when US producers invested all their money and took on more debt to “drill, baby, drill” every time oil prices went up.

Last year, American producers were not even tempted by $100 oil. executives at E&P firms said Dallas Federal Energy Survey for the fourth quarter of last month. Related: Venezuela’s vast oil wealth could become the world’s largest stranded asset

A total of 32% of E&P executives chose “cost inflation and/or supply chain bottlenecks” as the biggest impediment to their company’s production, 27% chose “a mature asset base,” and 16% cited “capital availability.” Each of the other options received 9% or less.

“Geopolitical risks, economic uncertainty, material and/or labor shortages, and anti-industry management have made it difficult to project what the next 12 to 18 months will be like for the upstream sector,” an E&P executive said in a statement. comments to scan.

According to the latest environmental impact assessment Short term energy forecast (STEO), the US crude oil production is expected to average 11.7 million barrels per day in 2022 and will average 12.4 million barrels per day in 2023, which will exceed the record set in 2019.

Some analysts and industry officials say this may be overly optimistic.

US oil supply growth will be modest this year, at its limits 400 thousand barrels per day Exit to exit at the end of 2023, according to Enverus Intelligence Research (EIR).

Enverus expects global demand to grow at 1 million barrels per day this year, half driven by the reopening of China.

Conversely, the combination of modest US supply growth (0.4 mb/d E/E), OPEC intervention and Russian sanctions prevents a build-up of crude, products and SPR stocks in the OECD, leaving the market undersupplied if An expected recovery in the global economy has materialized in the second half of 2023, Envirus said in a report earlier this month.

Energy Aspects analysts warn in October 2022 of US crude oil production from shale basins It could peak in 2024.

“The era of robust growth of oil shale in the United States is over,” Scott Sheffield, CEO of the largest oil shale producer, Pioneer Natural Resources, said recently. financial times.

“The shale model is certainly no longer a swing product,” Sheffield noted.

At the Goldman Sachs Global Clean Energy and Technology Conference earlier this month, Sheffield He said Pioneer has lowered its estimate of total Permian oil production from all operators to about 7 million bpd by 2030 from about 8 million bpd projected about a year ago. The Energy Information Administration estimates that the Permian River is currently pumping 5.5 million barrels a day.

Sheffield added that many companies are running out of inventory and turning to tier two and three inventory.

Shale growth is likely to be around 400,000 bpd this year, down from the 500,000 bpd to 600,000 bpd forecast by Sheffield over the past 12 to 18 months.

“And that will continue to decline over the next five years,” said the CEO of Pioneer.

OPEC back in the driver’s seat

OPEC is now in the driving seat, and if oil stays around $75, The cartel is likely to support pricesAccording to Sheffield.

They need oil to be at $100 a barrel or higher in my opinion. OPEC ministers are frustrated by the recent drop in prices. It’s understandable. I think it will change. If it stays so low I wouldn’t be surprised if they have another cut. “But they have to wait until February 5th to see the products being banned from Russia,” he said at the Goldman Sachs conference.

For Jeff Currie, global head of commodities at Goldman Sachs, the US shale patch was the place to look for spare capacity before 2020, and was able to influence oil prices when US oil production rose in the decade to 2020.

“Today that flexibility has disappeared, forcing us to return to the ‘old oil system’ of OPEC hegemony,” Currie told the Financial Times.

By Tsvetana Paraskova for Oilprice.com

More top reads from Oilprice.com:

Leave a Reply

Your email address will not be published. Required fields are marked *