The collapse of oil prices late last year, coupled with pressure from shareholders, has led to a slowdown in shale industry.
The EIA released new monthly data on March 29, which revealed a reduction in output of around 90,000 bpd between December and January, evidence that shale drillers had slammed on breaks after oil prices fell off a cliff in the fourth quarter. The 90,000-bpd decline came after an alarming 35,000-bpd increase the previous month, the weakest increase in months.
But the US shale industry faces more gulls than just a temporary drop in oil prices. Shareholders have been out of patience with unprofitable drilling, and are difficult returns, tightening the screws on less competitive companies and enforcing overall spending cuts. More concern about the industry is a growing recognition of the “parent-child” boom problem – the unexpected poor performance of subsequent wells is well drilled close to the original “parent”.
These barriers start to pile up. Schlumberger and Halliburton, the two main oil services companies, have predicted that shale drillers will be co-imposed to cut spending by over 10 per cent this year.
The slowdown could put some pressure on the oil market, which is already suffering from cuts in Venezuela, Iran and interconnected cuts of OPEC +. While the United States inventory has risen unexpectedly last week, many can be shaken from the rise up to turmoil in the Houston Ship Channel following a major fire in a petrochemical facility.
Indeed, some analysts see a significant decline in stock in the coming weeks. “The most visible inventory levels in the world… will suffer from a powerful mix of Venezuelan's supply interruptions, the Houston Channel chemical loss, and an increase in refinement runs,” Barclays wrote in a note on March 29. WalesTrade International rises to an average of $ 65 per barrel this year. Related: Trump Battles For Oil and Key Gas Projects
Add to the bullish momentum is the fairly sharp drop of 8 oil rig last week, the sixth consecutive week of decline.
However, it's not sure that the slowdown will last long. Kayrros says the downturn in production will be “short-lived”, and there are already indications that industry activity has risen in the last few months. “This collapse, which traces seasonal behavior in the past, follows a great success completed by Kayrros in December through a combination of satellite imagery and advanced processing,” Kayrros wrote in a report. “But the same proprietary technologies show that they were well finished back in January and February, resulting in a rebound in a production.” Indeed, Kayrros says a Permian production could t be more than expected this year.
Still, the delay in the shale piece gives higher prices. “We expect Brent to move to a range of $ 70-80 per barrel,” said Giovanni Staunovo by UBS, according to the Wall Street Journal. Related: Reuters: OPEC I Lower Oil Production Discounts Since 2015
At the same time, there are other signs of tightening. The Reuters survey shows that the OPEC production fell to four years low in March, as Saudi Arabia cut below its requirement and Venezuela posted deeper supply losses. OPEC produced 30.40 mb / d last month, a decrease of 280,000 bpd from the previous month. Notably, Venezuela saw 150,000 bpd go off-line, volume that cannot be easily restored.
Crucially, fears of economic slowdown have fallen slightly recently. New data from China showed that the biggest monthly increase in the index was purchased manufacturing managers since 2012. The data reduced concerns about China's proposed slowdown. Moreover, there is hope that US-China trade talks will lead to success and eliminate the tariffs, which would remove one of the biggest disadvantage risks to the oil market.
In early trading on Monday, WTI jumped over $ 61 per barrel and Brent moved up to $ 69 per barrel. “Get around. 27 per cent, Brent oil enjoyed its strongest start to the year since 2005 in the first quarter, ”wrote Commerzbank in a note. Although the bank has warned that the front for prices is rather limited, the Brent futures curve takes turns. “OPEC production cuts tighten supply on the world market. As a result, the Brent curve is backed up by the time. ”
By Nick Cunningham from Oilprice.com
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