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Oil prices for Skyrocket if U.S. Shale Stalls




A collapse of production in Venezuela, aggressive production constraints from OPEC +, relatively strong demand and an economy that merges together – and oil prices are still sharply below the highs last year.

Oil has surely jumped to the highest level since November, and a confluence of bullish forces seems to push prices up. But in years past, news as an oil producer like Venezuela suddenly saw production fall from over 1 million barrels per day (mb / d) down to 500,000 or 600,000 bpd overnight, shipped skyward prices. Now raw material goes with a book or so.

The reason for the relative limitation is that the market has expected American slate production to grow at an uncontrolled rate. In January, the EIA predicted that the United States would have an average of 1[ads1]2.1 mb / d oil production this year. A month later, the agency reconsidered the forecast with a massive 300,000 bpd to 12.4 mb / d. It was a well-known story. US slate continues to exceed previous expectations.

However, the MER only downgraded the forecast for the first time in six months. The latest short-term Energy Outlook looks at an average of 12.3 mb / d. This is a fairly small downward revision, but the direction is important. Related: Is a crisis threatening Canadian oil?

The series of consumption reductions from American slate manufacturers can actually slow down the drilling machine. "This is just the beginning," says Phil Flynn, senior market analyst at Price Futures Group Inc., to Bloomberg. "The reality of the situation is that many of these guys don't make money and have difficulty keeping up these levels of production. Any withdrawal will make it more difficult to keep the upward path of oil production higher. "

If American slate begins to decline, it can remove one of the key barriers against higher prices. Permian is the overriding factor that forecasters see when predicting a well-fed or even an over-the-top market. West Texas, but small and medium-sized drillers are struggling.

Without US slate pushing out other news, traders can begin to focus on some worrying hotspots around the world, multiplying flash points. "Despite the exterior extremely quiet, we believe the pressure for an upward movement has been built, "wrote Standard Chartered analysts in a note." In our opinion, the oil market has been very slow to focus on and price in a significant fall in Venezuelan crude oil production due to power shortages. . We believe that Venezuela's production has fallen below 500,000 barrels per day (kb / d) over the past week, down from an average of 1.1 million barrels per day (mb / d) in February and 1.2mb / d in January. "

Related: Billionaires fight it out over biofuel

Other analysts also point out that there is some interconnection between the mood in the market and the bullish factors that play. US oil rig bill is declining, with shale oil focus shifting towards "Show me the money", that is, they can no longer increase production by creating more debt, "wrote Bjarne Schieldrop, analyst at SEB." Further on the bull OPEC + continues to deliver on mortgaged cuts and will probably decide to market the market also in H2 2019 when they meet in April. "

Schieldrop said that the threatening prospect of the NOPEC legislation in the US Congress, which targets OPEC, is a downside Risk of Oil.

Meanwhile, with a wider look at the forces outside the oil market, Bank of America Merrill Lynch also comes to the conclusion that oil prices may edge up, despite some headwinds. " True, the demand remains a concern. Looking at PMI to a large extent, there has been a great weakening in the growth momentum. But the major reversal in the Fed and the ECB's monetary policy expectations, coupled with increased fiscal stimulus in China, will support global growth in 2H19, "wrote BofAML analysts." As such, we still see Brent averages of $ 70 / bbl this year. "

By Nick Cunningham, Oilprice.com

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