For years, OPEC ignored the rise of the U.S. shale industry and came to regret its mistake. Now, the group is making another bold gamble on Americas oil revolution: that its golden age is over.
When the Organization of Petroleum Exporting Countries meets this week, ministers will discuss whether to extend their current output target, rather than reduce it, according to people familiar with the internal debate. The reason? They believe relentless U.S. oil production growth will slow rapidly next year.
OPEC isnt alone. Across the industry, oil traders and executives believe U.S. production will grow less in 2020 than this year, and at a significantly slower rate than in 2018. On paper, the cartel has the oil market under control.
Brent crude has been trading around $60 a barrel for most of 2019, about 14% higher than at the start of the year but well below the peak of $75.60 a barrel set in late April.
“Saudi Arabia is doing a reasonable job to balance the market,” said Marco Dunand, head of commodity trading house Mercuria Energy Group Ltd. He has some words of warning too: “OPEC will need to watch U.S. production very closely.”
But Saudi Arabia and its allies should be wary of discounting competition from U.S. shale and other non-OPEC suppliers.
Total U.S. oil production reached an all-time high of almost 17.5 million barrels a day in September, up 1.3 million barrels a day from a year earlier. That expansion is likely to continue at least into the beginning of 2020 before slowing down.
Slower growth doesnt mean no growth, however. While the independent companies which drove Americas shale expansion are struggling, and have announced big spending cuts, Big Oil is now playing a much bigger role in key basins such as the Permian. Companies with deeper pockets, such as Exxon Mobil Corp. and Royal Dutch Shell Plc are likely to continue spending, increasing production in Texas, New Mexico and elsewhere.
Vitol Group, the worlds largest independent oil trader, expects U.S. production to increase by 700,000 barrels a day from December 2019 to December 2020, compared to growth of 1.1 million barrels a day from the end of 2018 to the end of 2019.
Brazil, Guyana, Norway
Perhaps the biggest problem for OPEC isnt American shale but rising output elsewhere. Brazilian and Norwegian production is increasing and will advance further in 2020. After several years of low prices, engineers have made many projects cheaper, and the results are clear.
Norways Johan Sverdrup oil field, the biggest development in decades in the North Sea, started up earlieRead More – Source