IEA Accused of Overhyping US Shale Boom as More Analysts Warn of Imminent Price Drop

Societe Generale believes crude could plummet by $8 per barrel in coming weeks. File Image / Pixabay

Saudi Arabia was the latest nation at the World Economic Forum in Davos, Switzerland to paint a bright future for the crude market, with its energy minister insisting the International Energy Agency has over hyped the U.S. shale boom.

But at least one respected analyst is convinced the market, which has so far seen remarkable gains in the first few weeks of 2018, is headed for a massive correction very soon.

Khalid al-Falih told an energy panel in Davos that “I was not disputing the amazing revolution of shale . . .[but] in the overall global supply demand picture it’s not going to wreck the train."

In a rare swipe at the IEA, Falih went on to note that “We should not be scared: that’s the core job of the IEA, not to take it out of context.”

Falih reiterated a familiar argument that rapid global demand growth and natural decline rates at existing fields means greater supplies will be needed, and U.S. output will be "absorbed"

Fatih Birol, executive director of the IEA, was in the audience as the Saudi energy minister spoke, and he retorted that “I believe the shale revolution is coming very strongly and we will see more and more impacts of that in years and years to come."

Of course, the Saudis are intent on maintaining higher prices in order to aid their economic diversification as well as maximize the profit of their initial public offering of state-run Saudi Aramco; however, if a dissenting voice is accurate, these goals may be difficult to achieve.

Mark Keenan, global commodities strategist and head of research for Societe Generale, warned on Friday that the "massive" build up of long positions (bets that oil prices will keep rising) on the part of investors will cause prices to tumble as much as $8 per barrel in coming weeks.

He said, "We think of the oil market right now as a three-legged stool and all three of these legs have provided a degree of uplift to prices," referring to the fundamentals of supply and demand as well as geopolitical tension, in addition to investors' positioning.

He justified his prediction by pointing out that "There's close to a billion barrels of speculative length out there that, when it unwinds, is going to cause the price to move down," and he added that the the most obvious trigger is a temporary drop in crude demand as refineries undertake seasonal maintenance.

The Davos Forum earlier saw Rick Perry, energy secretary for the U.S., gain considerable media attention for echoing Falih and stating that rising global demand will prevent the shale boom from spoiling international crude markets.