The US has returned to "bona fide energy superpower status", says David Sheppard in the Financial Times. US oil production eclipsed ten09 million barrels per day (mbpd) last December, according to the US Energy Information Administration, and has nearly caught up with the US record set during the Texas oil boom 47 years ago.
The nadir came in 2008 when around 5mbpd were produced. Only Saudi Arabia and Russia also supply more than 10mbpd, and the US will soon overtake them and become the world's top oil producer. By late 2019, it will be churning out 11mbpd.
That news, along with last week's market wobble, took the shine off oil's rally, with Brent futures slipping from three-year highs of around $70 per barrel after doubling in almost two years.But the overall tone is still bullish. "Wall Street will always do its bit" to drum up enthusiasm, says Gaurav Sharma on Forbes. Goldman Sachs predicts a climb of more than $80 in the next six months, while JP Morgan sees Brent averaging $70 almost 50% higher than its October forecast.
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Just as some commentators may have been too bearish last year, though, the optimism now looks to be overdone. The output-cut pact between Opec and Russia has removed much of the glut that developed in the past three years. Demand has risen faster than anticipated now the global economy has gained strength. Meanwhile, the Saudis' insistence that shale has been overhyped looks, erm, overhyped.
Shale changed the game
"US shale, in the past decade, is one of the biggest game-changers in oil production history," says the International Energy Agency (IEA). It predicted non-Opec supply growth of 1.7mbpd in 2018, compared to demand growth of 1.3mbpd."In other words, the IEA says the oil market will once again be oversupplied largely because of US shale," says Nick Cunningham on OilPrice.com.
Every time the price strengthens there is "a near-immediate uptick" in US drilling rig counts, says Sharma. Shale producers cut costs and improved drilling techniques in recent years, so they can boost production quickly if prices make it worthwhile.
In the longer term, expect more oil: the US has 91.1 billion economically recoverable barrels of oil reserves. The upshot? As long as oil doesn't fall under $40 (which it won't do because the demand for it is too solid), then US shale will be "fine". Opec's bid to create an oil price floor of $60 "remains under a medium-term, if not short-term, threat.
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
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