Americas News
OPEC Acknowledges U.S. Shale Dominance, but Morgan Stanley Says It Will Struggle to Meet Rising World Demand
The world, which up until recently was said to be choking on excess crude, is now so hungry for it that Morgan Stanley worries even U.S. shale producers won't be able to keep up with demand.
The bank expressed its concern in a research note, accompanied by raising its forecast for oil prices through 2020, with Brent fetching $62 per barrel in the final quarter of this year, up from an earlier estimate of $55; West Texas Intermediate will average $56 for the quarter, up from $48.
Morgan Stanley believes Brent and WTI will average $63 and $58 per barrel by the second quarter of next year.
But the bank's most controversial forecast is that the rapid growth of demand coupled with the Organization of the Petroleum Exporting Countries (OPEC) poised to extend its production cutback initiative as well an expected drop in U.S. crude inventories will oblige the U.S. to grow production from about 5.9 million barrels per day (bpd) this year to 7 million bpd in 2018.
That means drillers would have to activate 8 to 10 new rigs each month; and since the bank is uncertain this will happen due to rising costs and a shortage of crews and equipment, demand may not be met (the bank argues that outside of OPEC, there is little grow in oil supplies to compensate).
OPEC's view of the U.S. is slightly different: in this year's newly published World Oil Outlook report, the cartel states that it will meet much of the world's growing appetite for oil, which it pegs at 102.3 million bpd in 2022, up from 95.4 million in 2016.
However, OPEC sees shale production peaking in 2025: "This growth is heavily front-loaded, as drillers seek out and aggressively produce barrels from sweet spots in the Permian and other basins."
The report predicts that OPEC's output will raise sharply to 41.4 million bpd by 2040, the same year demand grows to 111.1 million bpd - after which growth will slowly decline.
Liam Denning, columnist for Bloomberg Gadfly, notes that OPEC's expectation of tight oil production peaking in the mid-2020s "may betray a lingering unwillingness to acknowledge the important role of access to capital and logistics - not just geology - in the tight-oil boom.
"That aside, OPEC's latest WOO reaffirms that it regards itself as the bedrock of the oil market in the long term."
If nothing else, OPEC is more or less consistent in its outlook: last month, amid a wave of predictions that alternative energy would soon make oil obsolete, the cartel insisted there would be "no peak" for oil demand for "the considerable future."
