Oil Prices Spike On Shale Slowdown
The collapse of oil prices last year, together with pressure from shareholders, has led to a decline in the US shale industry.
EIA released new monthly data on March 29, which showed a decrease in production of approx. 90,000 bpd between December and January, evidence that slate drillers paused after the oil price fell off a cliff in the fourth quarter. The 90,000 bpd decline came after a rather weak increase of 35,000 bpd a month earlier, which was the weakest increase in months.
But the American slate industry faces more headwinds than just a temporary dip in the oil price. Shareholders have gone out of patience with unprofitable drilling, and are demanding returns, tightening the screws of less competitive companies and forcing them to cut costs across the board. More worrying about the industry is the increasing recognition of the well-being problem "parents and children" ̵[ads1]1; the unexpected bad performance of subsequent wells drilled in the immediate vicinity of the original "parent" well.
These obstacles begin to pile up. Schlumberger and Halliburton, the top two oilfield service companies, have predicted that slate drillers will be forced to cut by more than 10 percent this year.
The downturn can give some bullish pressure on the oil market, which is already suffering from outbreaks in Venezuela, Iran and coordinated cuts from OPEC +. While US inventories rose unexpectedly last week, much of the increase could be chalked up to the Houston Ship Channel's turmoil following a major petrochemical fire.
In fact, some analysts see significant stock reductions over the next few weeks. "The most visible stock levels in the world … will be the victim of a vigorous mix of Venezuelan supply disruptions, a chemical game in the Houston Ship Channel, and an inflated refinery", Barclays wrote in a note on March 29. The investment bank sees WTI rise to an average of $ 65 a barrel this year. Related: Trump battle for key oil and gas projects
Adding the bullish momentum is the rather sharp fall of 8 oil rigs last week, the sixth consecutive week of decline.
But, it is not guaranteed that the decline will last long. The computer company Kayrros says that the production decline will be "short-lived" and that there are already signs that business activity has picked up in recent months. "This drop, which traces past the season's behavior, follows a leap in finishes measured by Kayrros in December via a combination of satellite images and advanced processing," Kayrros wrote in a report. "But the same proprietary technologies show that successful replenishments ran back in January and February, assuming a decline in production." In fact, Kayrros says the Permian production again exceeded expectations this year.
Still pausing in the slate delivers higher prices. "We expect Brent to move into a range of $ 70-80 barrels," said UBS Giovanni Staunovo, according to the Wall Street Journal. Related: Reuters: OPEC's oil production drops to lowest since 2015
At the same time, other signs of tightening abound. A Reuters survey shows that OPEC's production fell to four years in March, when Saudi Arabia cut its demand and Venezuela had deeper supply losses. OPEC produced 30.40 mb / d last year, a decrease of 280,000 bpd from the previous month. Especially Venezuela saw 150,000 bpd go offline, a volume that cannot be easily restored.
Fear of an economic downturn has slowed somewhat recently. New data from China showed the largest monthly increase in manufacturing procurement managers' index since 2012. Data reduced concerns China's imminent decline. Furthermore, there is hope that trade negotiations between the United States and China will lead to a breakthrough and removal of tariffs, which will eradicate one of the major drawbacks to the oil market.
In early trading on Monday, WTI jumped over $ 61 a barrel and Brent moved up to $ 69 a barrel. "Achieving about 27 percent, Brent's oil had its strongest start to the year since 2005 in the first quarter," wrote Commerzbank in a note. Although the bank warned that the upside for prices is somewhat limited, Brent takes the futures curve on a bullish note. "OPEC's production cuts tighten the supply on the world market. As a result, the Brent forward curve is reversed all over."
By Nick Cunningham from Oilprice.com
More top readers from Oilprice.com : ]
