Americas News
Self-Discipline Will Temper US Impact on World Crude Market: Analysts
Although the International Energy Agency on Monday reported that surging output form the U.S. will dominate the global oil industry for the next five years, several experts think the market is also changing to the point where shareholders are now seeking shale companies that have enough self discipline to not pump to the point where another glut occurs.
The IEA has calculated that the Americans will pump 17 million barrels per day (bpd) of crude oil, condensates and natural gas liquids, easily defending its title as the world's top producer of petroleum products, and up from 13.2 million bpd in 2017.
It also forecast that the U.S. will cover at least 80 percent of world demand for crude as demand steadily expands over the next five years, with China and India becoming the two top importers of the commodity.
But Dan Pickering, co-president of Tudor, Pickering, Holt, said that despite the U.S. having the capability to "spoil the party" by ramping up output outrageously, there is a growing emphasis among producers on discipline and balance-sheet strength, due to the insistence of shareholders.
He remarked, "They are buying companies that are more disciplined, and they are selling companies that are less disciplined; there would be more spending if companies could do whatever they wanted.
"It's the balancing of the capital discipline in the balance sheet and the returns you can get: it's a tightrope act, and shareholders are weighing in, along with boards."
To which Daniel Yergin, vice chairman of IHS Markit, added, "It's no longer just about production growth, it's also about return to shareholders, and I think the companies have heard them; it's a different metric than it was even a year ago."
Whether or not this will affect the global market is unclear, especially in light of Fatih Birol, executive director at the IEA, describing American activity as "a major second wave."
As far as Mohammad Barkindo, secretary general for the Organization of the Petroleum Exporting Countries, is concerned, worldwide demand is strong enough to offset any such waves: he said, "Demand has not been this solid and positive in a long while, probably since the last global financial crisis."
In fact, he went on to say, "We have seen a very sharp contraction in investment for almost two consecutive, running to three consecutive years; we are sowing the seeds for a possible – God forbid – future energy crisis."
Still, the production capability of the U.S. continues to evoke emotion in most analytical circles, with the primary emotion being fear: last month OCBC Bank joined the voluminous ranks of concerned parties by worrying that shale producers have made the market vulnerable to "ballooning supplies" and that crude prices could as a result inch below $60 in the first quarter of this year.
