News: OPEC, U.S. oil firms expect subdued shale rebound even as crude prices rise.
LONDON / HOUSTON (Reuters) – OPEC and US oil companies see limited recovery in shale oil supplies this year as leading US producers freeze production despite rising prices, a decision that would help OPEC and its allies.
This month, OPEC cut its forecast for US crude oil, another name for shale, for 2021 and expects production to drop by 140,000 barrels per day to 7.16 million bpd. The US government expects slate production to decrease by 78,000 bpd to 7.5 million bpd in March. [OPEC/M]
The OPEC forecast preceded the icy Texas weather, which produced 40% of US production, closed wells and dampened demand from regional oil refineries. The lack of a shale rebound could make it easier for OPEC and its allies to manage the market, according to OPEC.
“It should,” said one of the OPEC sources, which refused to be identified. “But I don’t think this factor will be permanent.”
While some U.S. energy companies have stepped up their drilling, production is expected to remain under pressure as companies cut spending to reduce debt and increase returns for shareholders. Shale producers are also concerned that OPEC would quickly drill more drilling to bring more oil to market.
“In this new era, (shale) requires a different mindset,” said Doug Lawler, executive director of shale pioneer Chesapeake Energy Corp, in an interview earlier this month. “It takes more discipline and responsibility in generating cash for our stakeholders and shareholders.”
This feeling would be a welcome development for the organization of the petroleum exporting countries, for which a price drop from 2014 to 2016 and a global flood caused in part by increasing shale production were an unpleasant experience. This led to the founding of OPEC +, which has been reducing production since 2017.
OPEC + is in the process of slowly lifting the record production restrictions it hit last year as prices and demand collapsed due to the pandemic. Alliance members will meet on March 4th to review demand. At the moment history doesn’t repeat itself.
“US shale is the main non-OPEC supply for the past 10 years or more,” said another OPEC delegate. “If such a growth restraint is expected now, I see no concern as producers elsewhere can meet the growth in demand.”
Even so, OPEC is in no rush to open the taps. Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, said on February 17 that oil producers must remain “extremely cautious”.
$ 60 oil helps
Shale production is usually quick to react to price signals and US crude oil has hit its highest level since January 2020 this month, at over $ 60 a barrel.
While shale companies have added more rigs in the past few weeks, a tepid rebound in demand and pressure from investors to deleverage have kept them from completing new wells.
“At this price, any oil production is profitable, especially the relatively expensive US shale field,” said Stephen Brennock of broker PVM Oil Associates.
“Despite these positive growth signals, the tight oil production in the US is far from recovering its pre-COVID mojo.”
Shale producer Pioneer Natural Resources Co’s chief executive officer Scott Sheffield recently said he expected small businesses to increase production, but overall US production would remain unchanged up to 1% higher even at $ 60 a barrel.
Last week’s severe cold will destroy oil and gas production as companies deal with frozen equipment and a lack of electricity. The largest independent US producer, ConocoPhillips, said Thursday that the majority of its Texan production has remained offline.
But JP Morgan analysts said in a February 18 report that rising oil prices could lead to a faster revival of the shale.
“As long as operators have wells drilled but not cracked, they should be able to easily increase production while keeping investments in check,” the bank said using one term for drilling spending.
Forecasts for 2022, for example by the US Energy Information Administration, assume stronger growth in US supply [EIA/M], although maybe not enough to cause OPEC + problems for now.
“US oil production will not return to pre-COVID levels in the near future,” said Brennock of PVM. “But that doesn’t mean that the US slate won’t one day return as a thorn in the side of OPEC.”
By Alex Lawler in London and Jennifer Hiller in Houston; Adaptation by Gary McWilliams and Matthew Lewis
Original Source © Reuters