U.S. Shale Concerns Caps Crude Gains, But BofAML Sees Potential for Further Upswings

by Ship & Bunker News Team
Thursday March 15, 2018

A pick up in the S&P 500 stock index supported another modest rise for crude prices on Thursday, with West Texas Intermediate settling up 23 cents to $61.18 per barrel and Brent settling 23 cents higher to $65.12.

However, the International Energy Agency put a cap on the gains by stating that global oil demand is expected to pick up this year by about 1.5 million barrels per day (bpd) but supply is growing at a faster pace of 1.8 million bpd, which will lead to a rise in inventories in the first quarter of this year.

Another grim disclosure with the potential to influence traders in coming days was provided by Bloomberg, which noted that although Saudi Arabia remains committed to the Organization of the Petroleum Exporting Countries' (OPEC) objective of restoring inventories to their normal levels, "OPEC shipments will rise by 100,000 bpd in the four weeks to March 31, according to tanker tracker Oil Movements."

Rob Haworth, who helps oversee assets at U.S. Bank Wealth Management, attempted to summarize what's going on in the crude market by stating, "This is a range-bound market for the moment; the data this week has been somewhat mixed - you've got the IEA talking about higher demand, you've got Saudi Arabia talking about their commitment to production cuts.

"The countervailing factor ends up being shale production growth."

Singapore-based brokerage Phillip Futures seemed to agree: in a note on Thursday it said, "Surging U.S. output levels will continue to undermine OPEC's efforts for stronger oil prices."

But for every pessimistic note sounded in the crude market, it is usually rejoined by cautious optimism: Hootan Yazhari, head of MENA and frontier markets at Bank of America Merrill Lynch, told Bloomberg television that while shale is constantly moving upward in terms of production in 2018, as long as the(OPEC) "is cohesive, that Saudi Arabia and Russia are able to agree to another [output reduction] extension and slowly come out of it in 2019, I think support for the oil prices should be good."

He went on to say that "also, in the coming months as well, we tend to see demand starting to grow: we're approaching the U.S. driving season that provides some tailwinds for oil prices, so we do see, actually, the potential for oil prices to move above where they are despite the headwinds from shale.

"And demand is what's really important right now: that's what's really driving the market and why, despite the very surprising numbers coming from the United States, actually we're not seeing oil prices collapsing below $60 down towards the $50 level."

Earlier this week, Spencer Dale, chief economist at BP, expressed his belief that U.S. shale will probably account for half the world's total growth in oil supplies over the next 20 years.