It's not just OPEC production cuts, Venezuelan chaos, and sanctions that push up oil prices this year – the US. The shell production is also decreasing.
And the result is a phenomenal 30-percent rally in WTI cruises in the first quarter, with US benchmark hopping from as low as $ 45 a barrel in early January to as high as $ 60 at the end of March.
These improved supply bases, including declining concerns over global economic and oil demand growth, have led to the oil's best quarterly performance over a decade.
But the key driver has lowered US slate growth in response to a 40 percent drop in prices in Q4 2018, according to a note from
John LaForge, head of real estate strategy at Wells Fargo Investment Institute.
While Saudi Arabia is a "swing" producer, which manages the market by deliberately holding back or increasing production, regardless of cost, the US marginal oil producer ̵
But US oil production growth is now rising, with an average daily US crude oil production falling in January from last month for the first time in nearly six months, according to the EIA report from late March.
And it is in the margins we should see.
"Commodity prices are often put on margin, which means they are put off the country that is producing the extra barrel of oil, ounce of gold, or pounds of copper. , "laForge notes. Related: Slate is in a deep state of Flux
"The oil price for 2019 is a direct response to the potential for future production growth in the US to slow down," according to Wells Fargo Investment Institute, which has a price of $ 65 per barrel by the end of 2019 for the WTI.
Referring to the breakeven prices of the world's marginal oil producer, LaForge said:
"The middle of $ 40 is the point that the average American slate producer is seriously questioning (limiting) his future drilling plans – and this is exactly what happened in end of 2018. "
Slate manufacturers tend to agree with that notion.
According to the Q1 Dallas Fed Energy Survey, with executives from 82 E&P companies chiming in, average breakeven rates to profitably drill a new well area from $ 48 to $ 54 per barrel, depending on the region. Drillers need $ 50 a barrel on average to profitably drill a new well, down from $ 52 a barrel when asked the same question last year. Average breakeven prices in Midland in Permian were $ 48, lowest price in the US and lowest cost region over the last three years.
"With the recent recovery in the oil price, the majority of companies surveyed can profitably drill a new well at current prices; 78 percent of the responses were on or during the March 22 WTI spot price ($ 59 per barrel), the survey shows. . Related: Aramco's Mega Debt Deal is a furious success
However, the Q1 rally from $ 45 to $ 60 has been significant, so look forward to the higher WTI The prices are likely to result in extra US oil production in the coming months, and set the stage for more global supply, said Wells Fargo Investment Fund's LaForge.
"The next short-term oil movement may be down, probably into the low to mid-50s dollars. However, later in the year, we suspect that the WTI will run at $ 65 when geopolitical tensions warm up among oil-related countries, "he noted.
Later this year, oil prices will be driven by a combination of many factors, including, but not limited to. The tighter US sanction against Venezuela, the upcoming US decision on Iranian oil buyers, OPEC's next production policy move and geopolitical inflatables such as those in Algeria and Libya will affect the supply side of the oil market, global economic and trade issues will determine how flexible ( or not) Oil demand growth will be this year.
By Tsvetana Paraskova for Oilprice.com
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