Chevron: US Shale Not Enough to Satisfy World's Hunger for Crude

Chevron says US Shale is not enough to satisfy world's hunger for crude

Adding to the growing market dichotomy that on one hand has experts saying it'll take years to reduce the glut due to poor demand and on the other is loaded with analysts insisting that strong demand will soon cause a major tightening of supplies, Chevron on Monday declared that U.S. shale alone cannot meet the world's consumption of crude.

John Watson, CEO of Chevron, told CNBC that while the Permian Basin "is the gift that keeps on giving" and that "for the short run we're the swing producers" in a market "that is now pretty well balanced," he warned that "in due course we're going to need all sources of supply, including the shales, but also deepwater and other sources around the world" to satisfy what he called "a 1 million barrel per day [bpd] growth."

Watson added that U.S. President Donald Trump rescinding resource production regulations could kick-start the economy and aid in the push to meet crude demand.

Watson sentiments dovetail with those of the International Energy Agency, which last week in a report stated that current chronically low discoveries could soon lead to an unwanted tightening of global oil supplies and sharp price hikes.

The IEA in its new report seemed to share Watson's concern about the limitation of U.S. shale; in the agency's case, however, it theorized that the huge increase in American production is not enough to make up for a shortfall in conventional oil development, with conventional sources accounting for 69 million bpd of the current global output of 85 million bpd.

Meanwhile, on the other side of the world, a battle is brewing in a bid to win market share of one of the top consumers of crude: Asia.

Saudi Aramco is busy building refineries to boost its fuel-trading volume by more than a third, in order to grab a bigger share of growing Asian and African markets; driving this expansion is the fact that Saudi Arabia has ceded market share to rivals Iran and Iraq due to making deeper than promised output cuts under the Organization of the Petroleum Exporting Countries crude reduction initiative.

But while the Saudis and experts like Watson seem to indicate that demand is growing enough to justify expansion and investment, the argument on the other side is equally persuasive and was most recently summarized by Patrick Pouyanne, CEO of Total, who said at a Paris conference that U.S. shale's growth is thwarting global efforts to reduce swelling stockpiles and could well lead to further price declines.