'Another Russia' will keep a lid on the oil price

Applying shale techniques to mature conventional oil fields could tap another 140 billion barrels worldwide.

Oil has rallied by around 40% from January's six-year low of around $45 a barrel. But in the past few weeks the rally has run out of steam, and it's hard to see what will sustain the momentum, says Nicole Friedman in Barron's. The slump in prices caused a plunge in the number of American oil rigs.Last week there were 646 in operation, which is down from 1,482 at the start of the year.

Advertisement - Article continues below

As a result of this drop, you would expect production to fall, but in fact it has edged up as producers have become more efficient. It reached 9.6 million barrels per day (mbpd) last week, a record for weekly data going back to 1983.

Opec, the producers' cartel, has been trying to squeeze America's shale producers out of the market by pumping more oil. In April, output from Saudi Arabia, the key producer, reached a record 10.3mbpd. Opec as a whole is producing more than its target of 30mbpd.

As far as Saudi Arabia goes, signs of resilience in US production will just "redouble its determination to maintain market share'" against shale producers, says Fiona Maharg-Bravo on, as higher prices will just trigger more shale investment. Shale costs, moreover, could well keep falling as drillers gain experience: retrieving oil from shale "is more akin to a manufacturing process than traditional oil drilling".

According to Goldman Sachs, Opec and US shale output combined could cover the expected growth in global demand all the way through to 2025. Longer term, IHS, a consultancy, estimates that applying shale techniques to mature conventional oil fields could tap another 140 billion barrels worldwide, says Maharg-Bravo. That's the equivalent of another Russia.Low prices will prompt a rise in demand, but it seems there is more than enough supply around to keep a lid on prices for now.



Global Economy

What escalating tension between Iran and the US means for oil prices

The tension between the US and Iran is unlikely to mean all-out war in the Middle East. But markets may be getting a little too complacent about its e…
6 Jan 2020

Rising output will keep a lid on the oil price

Oil exporters’ cartel Opec gave further encouragement to the bulls this month after agreeing to new production curbs.
20 Dec 2019

Brace yourself for pricier oil

Global growth, and hence demand for oil, could surprise on the upside next year, leading to a bounce in the oil price.
29 Nov 2019

Why has the oil market taken the Saudi attack so calmly?

After an initial spike in the oil price, the market seems to have shrugged off the attack on Saudi Arabia’s oil infrastructure. John Stepek asks if it…
23 Sep 2019

Most Popular

UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020
Global Economy

The MoneyWeek Podcast: James Ferguson on the virus, the lockdown, and what comes next

Merryn talks to MoneyWeek regular James Ferguson of Macrostrategy Partnership about what's happened so far with the virus; whether the lockdown was th…
28 May 2020