Americas News
IEA Warns Higher Oil Prices Will Give a "Significant" Boost to Shale Amid Signs U.S. is Already Ramping Up
The specter of increased U.S. shale production - which was always viewed as an undesirable consequence of the Organization of the Petroleum Exporting Countries' (OPEC) initiative to slash output and boost prices - has been cited as the cause for Brent on Wednesday settling down $1.55 to $53.92 per barrel and West Texas Intermediate falling $1.40 to close at $51.08 per barrel.
The losses occurred after Fatih Birol, executive director for the International Energy Agency, said that higher oil prices will trigger a "significant" boost in U.S. shale output as OPEC and other producers rein in supply; also on Wednesday, a new OPEC report predicted a 230,000 barrel per day (bpd) upward revision to U.S. supply this year.
On top of that, IEA data shows that U.S. stockpiles are at 483.1 million barrels, the highest seasonal level in more than three decades.
It's no secret that the U.S. is in recovery mode: Exxon Mobil Corp. on Tuesday announced it will pay up to $6.6 billion to double its holdings in the Permian Basin of west Texas and New Mexico, which is America's largest oil field.
Unlike other regions, much of the Permian's oil can be pumped at prices of about $53 per barrel - which renders somewhat moot a comment made by Birol that at $56 to $57 per barrel, "a lot of shale plays in the United States would make perfect sense to produce."
Some industry insiders view Exxon's move as motivated by the expectation that oil prices won't rise significantly higher in the foreseeable future - and indeed, BP earlier this week stated that it is strategizing based on a $55-$60 per barrel price for 2017.
Nonetheless, Exxon purchasing a string of family-owned oil companies to increase its presence in the Permian will increase its total shale reserves to over 6 billion barrels, and media view the deal as another vote of confidence that shale is recovering.
Adam Wise, managing director - oil and gas for John Hancock, suggested to Bloomberg that all of this was predictable when he stated, "At current prices, you're seeing an increase in the rig count, which will increase U.S. production; we're going to see headline-driven movement from day-to-day, but the long-term trend remains higher."
Last week, U.S. Energy Information Administration data showed that crude production has risen notably, particularly in the lower 48 states, to 8.95 million bpd - the most since April of last year; this prompted John Kilduff, founding partner at Again Capital, to call the EIA data, "one of the most uniformly bearish reports in some time."
