Americas News
Oil Stuck in $40-$60 Range in Face of Unstoppable US Shale: Analysts
Citi, which in February calculated that crude prices would trade between $40 to $65 per barrel from 2017 to 2022, announced a revision of its estimates on Thursday and now thinks the range will be between $40 to $55 between 2018 to 2020 and then $50 to $60 through 2022 - with price shocks if supply disruptions increase dramatically.
Moreover, Citi rejects the argument from the International Energy Agency that declining production rates and a lack of new projects will render the market under supplied; instead, it believes U.S. shale and an improved outlook for projects in nations such as Mexico, Guyana, Brazil, and Canada will sustain the market and cap price at $60 through 2022.
Citi also says there is room for about 1.5 million barrels per day (bpd) of growth through 2020 from U.S. shale fields, and that in a base case U.S. crude prices could average $55 per barrel through 2022.
About the only thing that could disrupt the range-bound market according to the bank is a 1 million bpd drop in global production, which would cause prices to spike above $70 per barrel; conversely, if supply disruptions lessen by 500,000 bpd next year, prices could drop to the $30s.
Citi's argument that U.S. shale has fundamentally changed the oil market is shared by John Driscoll, chief strategist at JTD Energy Services, who told CNBC to forget reading much into inventory drawdowns during the peak driving season: "If you only look at the inventory draw, you're missing the bigger picture....the most important factor is the increase in U.S. domestic crude production; this is the one thing that has throttled the OPEC/non OPEC cartel's plans to micro-manage supply."
As for the Organization of the Petroleum Exporting Countries' next play, Driscoll said, "They've failed to comprehend that the independent U.S. producers are working with a different set of economics, plus, when they tried to open up all the taps in 2015, the producers in the U.S. were able to forward their hedge position and survive a downturn."
He concluded that considering the U.S. is now "playing in OPEC's backyard" with regards to export customers, "there's nothing OPEC can do to stop them."
Although he didn't state if the U.S. was influencing his outlook, Oliver Sloup, director of managed futures at iiTrader, said that seven weeks of drawdowns may edge crude prices towards $49 per barrel, but "I think we're in a longer term downtrend that seems to be the path of least resistance; we've been making lower highs and lower lows since the beginning of the year."
Sloup went on to note that crude will probably trade in the $45 level for the next few weeks then slide to year lows of $42.
Earlier this week, Ed Morse, global head of commodity research at Citigroup, noted that there's a lot more oil left in the Permian Basin than originally thought and that OPEC's actions aren't sustainable in the face of U.S. producers who can "survive at a lower price."
