Photo: Daniel Acker / Bloomberg
American shale companies announced ambitious projects to increase production. Their plans threaten to undermine the efforts of OPEC to stabilize the world oil market and recovery in prices for raw materials, experts warn
The dilemma OPEC
This week in Houston was held CERAWeek, one of the most representative conference on the global energy market, which brought together industry professionals from around the world, including from the OPEC countries, Russia and the United States. The market situation poses a dilemma cartel, according to Bloomberg. The performance of obligations on reduction of oil production has already surpassed expectations (after the announcement of the transaction prices increased by $3.7 to $54,14 data on Tuesday, 7 March), however, the oil reserves in the US continue to increase, putting the historical records and the growth of prices stopped in the range of $50-53 per barrel, indicating a need for additional measures. Under these conditions, shale producers started to increase production, and analysts warn that a further increase of quotations will only increase the excess supply in the market.
These factors triggered a sharp collapse of quotations, which occurred immediately after the publication on Wednesday, March 8, regular weekly statistics of the energy information Administration of U.S. Department of energy (EIA). The oil reserves in the U.S. last week rose by 8.2 million barrels. (four times more than the forecasts of analysts polled by Reuters), to 528,4 million barrels., record volume since data were first collected in 1982. Futures on WTI fell by 5.7%, the maximum value for the year and for the first time since November was below the 100-day moving average, down nearly $50 per barrel. Brent crude has fallen in price more than on 5%, to $53,02 a barrel, the low from December 2016. Thursday, March 9, WTI continued to fall, dropping below the psychological mark of $50 a barrel for the first time since December, and as of 20:00 Moscow time WTI is trading at $49,17 per barrel, Brent crude also fell to $51,98 per barrel. Reacting to the fall in oil prices, the dollar went up. On Tuesday the American currency has risen in price for 1,15 RUB, to RUB 58,18 of 59.33 (as of 20:45 GMT).
“On the one hand, OPEC takes commitment and superior to make predictions, and that’s a plus, said Bloomberg Jeff curry, head of research of commodity markets at Goldman Sachs. On the other hand, the supply, especially in the United States, is growing much faster than everyone expected, and it’s a minus”. Global stocks are shrinking more slowly than expected, OPEC and its partners, so the deal on production cuts may be extended, said this week the oil Minister of Saudi Arabia Khalid al-falih. Industry experts disagreed on the necessity of extending the OPEC agreement, initially concluded for six months. Ed Morse, head of research of commodity markets at Citigroup, is waiting for renewal it is only because, in his opinion, will ensure the inventory reduction. Mike Wittner, head of the Department of oil market research at Societe Generale, believes that the cartel should raise production in the second half to meet demand.
Us shale majors recovered from a two-year price war with OPEC and announced plans to increase production in North Dakota, Oklahoma and other oil-bearing basins of the country. Production in America’s largest Permian basin has been growing for the last six months. Statement on the revitalization has made this week from companies such as Hess, Chesapeake Energy, Continental Resources and Anglo-Dutch Royal Dutch Shell. The announced projects will allow companies to create conditions to ensure a stable supply of American oil exports in the next decade, writes Reuters.
Continental hired contractors to resume drilling operations on the wells of the Bakken shale (North Dakota), preserved at a time of falling prices. Chesapeake, one of the largest operators of oil fields in the USA (by area) while mastered from them only 25%. “We have great opportunities, — quotes Reuters the words of Frank Patterson, head of exploration and production Chesapeake. — We can use what we have and grow.” Hess, one of the largest oil producers in the Bakken, has commissioned four rigs. Current quotes will allow the company to mine for more than a decade, said Hess CEO John Hess. “We resumed growth in the Bakken,” stated Hess.
Drilling rig in North Dakota in the United States
Photo: Jim Urquhart / Reuters
The sale of licenses for drilling in the Permian basin in 2016 rose more than threefold by 2016, to $28 billion. Chevron, which owns licenses for drilling sites a total area about 2 million acres, expects mining companies in the field will grow by 20% by 2020. “We increase production,” said CEO John Watson. Royal Dutch Shell is stepping up shale production at a faster pace, reported Reuters Greg Guidry, the head of the unconventional business of the company. Shell plans to make the extraction of shale oil and gas the main driver of its growth in the next decade, explained a top Manager.
Leading companies in the shale gas industry announced more investment in production this year; in 2018 oil production in the U.S. will exceed the record, recorded in 1970, and will increase by 10%, to 10 million barrels. a day, EIA expects. If the forecast is justified, shale companies will win a share of the world market and OPEC will satisfy the world’s growing demand for oil, writes Reuters. Oil production for the year will increase on average by 145 thousand barrels. a day noted in the review of February 26, Damien Courvalin and other analysts of the Bank Goldman Sachs. Capex shale companies will increase in 2017 by 80%, and overall investment of the North American oil sector will increase by 45%. The number of drilling oil and gas installations in the United States for the year will increase by 3%, to 822, expects Goldman Sachs. Rating Agency Fitch expects the growth in US production will continue in 2017 due to the growth in the number of drilling rigs, growth of investments in oil production, and lag two to four months between the start of drilling and beginning of production in shale deposits, said RBC senior Director Fitch Maxim Edelson.
Over the past year oil prices have doubled and us shale, the company announced a significant investment growth in 2017, hurrying to invest in the trade in a favorable price environment. Capital expenditures Anadarko Petroleum in 2017 will grow by 70%, EOG Resources by 44%, according to the company. Exxon Mobil will send on shale projects a third of its drilling budget for this year, writes Bloomberg.
Shale producers are preparing for the 2012 strengthening of drilling operations. Drilling activity in the U.S. increased for the tenth consecutive month, according to data from Baker Hughes. By the end of February the number of drilling rigs reached 602, showing almost a twofold increase from June 2016. The number of General and land rig oil and gas installations in the United States was 754 and 737 units, respectively, or almost two times higher compared to levels in may 2016. “We are seeing a second wave of rising demand in the United States,” — said on the sidelines of the Houston forum Bloomberg Fatih Birol, head of the International energy Agency. The oil Minister of Saudi Arabia Khalid al-falih, in turn, told the forum participants that “green shoots” the U.S. oil industry back “too quickly”. Ryan lance from ConocoPhillips irony that, in his view, these shoots are more like “trees”.
Shale vs OPEC
The incident on Wednesday, the price collapse is evidence of the growing impact of the us shale companies in the global industry and raw material prices that were once the exclusive privilege of the OPEC, writes Reuters. This fact on the Houston conference was acknowledged by the representatives of both camps in the oil market. “According to the specific weight in the world market today, we have almost caught up with OPEC,” said Harold Hamm, CEO of Continental Resources, one of the largest shale producers in the US with assets from the Bakken to Oklahoma. At the conference, Hamm cautioned, atypical for the industry, aimed at fast growth and competition with OPEC. In his opinion, investment growth in shale “kill” sector: “oil Production in the United States can significantly increase, but production growth should be gradual, otherwise we will kill the market.” As follows from the data about oil stocks in the USA on the world oil market are the risks of excess production, with the result that prices might go down again. The energy information administration of U.S. Department of energy (EIA) on Wednesday, March 8 raised its forecast of oil production in the United States for 2017 to 330 thousand Barr. a day to 9.21 million barrels. a day. Currently, the level of production in the country is 5% below historical highs.
Producers of US shale oil watching will be extended if OPEC and independent producers agreement to reduce output by 1.8 million barrels. per day, which expires at the end of June. If the deal is not renewed, then the oil may fall to $40 per barrel; it will have serious consequences for investment in the shale gas industry in the United States, said the head of Pioneer Natural Resources Scott Sheffield. According to experts, in the Permian basin at a price of $40 a barrel will experience a significant decommissioning of drilling and other fields may become economically feasible.
Fitch assumes that the average for the year prices for Brent crude oil in 2017 will be $52.5 per barrel, which is below the price levels of January—February 2017, said RBC senior Director Fitch Maxim Edelson. Average predicted price level for WTI — $50 per barrel in 2017. Fitch believes that in the years 2018-2019 will happen slow recovery in the price of Brent crude to $65 per barrel, which corresponds to the calculated Agency long-term price equilibrium in the oil market.