After Brent crude in the first half of March rebounded to $41 per barrel, the International energy Agency (IEA, IEA) saw “light at the end of the tunnel” for the oil industry, and Goldman Sachs analysts considered the signs of its revival. However, many analysts warn that the upward trend may soon cease, as it already happened last year.
“If prices continue to rise, U.S. shale producers will quickly respond to this trend,” warns in an interview with Bloomberg TV, the Vice-President of the consulting firm IHS Energy Jamie Webster. The reduction in US production is key to balance supply and demand, that is, if American producers of shale oil will again reach the market, prices will fall, says analyst.
Oil production in the USA dropped 5.5% last summer, but the reduction of accumulated stocks of raw materials has barely begun, noted Goldman Sachs. The Bank warned that the oil will drop to $20-30 per barrel, believes that quotes should remain at a low level until, until the producers run out of capital reserves. Otherwise, production will not be reduced enough to help eliminate developed market oversupply. “Premature price rally, before the market will experience a shortage, will not bring any benefit”, — noted in the review of March 11, Jeffrey Currie, head of “research of commodity markets” new York division of Goldman Sachs. Restore “can save American manufacturers” that “will limit the reduction in production,” said an Analyst at UBS Group in Zurich Giovanni Taunovo. According to the consensus forecast of nine analysts surveyed by Bloomberg, the global oil benchmarks will be difficult to overcome the level of $50 per barrel. this year, as the further growth of quotations will only slow down the production cuts needed to balance the market.
Brent futures have risen by 40% since January, when they traded near 12-year low ($27,10 per bbl), and at 17:40 on Tuesday located at $38,80. In terms of the largest since 1992 the reduction of oil production by countries outside OPEC, “the prices, apparently, have already started to recover,” the IEA noted in the review from March 11.
Last year’s scenario
The claim that $50 is a ceiling for oil prices is erroneous, according to the investment company Sanford C Bernstein & Co. In its forecast, the oil price will rise to $70 next year. The oil industry cannot remain profitable at current price levels, losing $3 for every barrel that was produced last year in terms of cost reduction, noted Sanford C Bernstein & Co. “The price of oil must rise to balance the market in the medium term, and we can approach this milestone sooner than we think”, — noted in his review of the new York analyst Bob Brackett.
But the rally may fizzle out before the prices rise to a level that is able to restore production in the United States, believes Taunovo. Temporary support prices has had a stop of prorolling of oil on pipelines from Iraq will disappear, and negotiations between OPEC and non-cartel countries to freeze production will have no noticeable impact on the market, says the analyst. Iran refuses to support the freeze of production at the January level as long as the country is not to increase exports to 1 million barrels., said yesterday in Tehran, Russian energy Minister Alexander Novak after talks with his Iranian counterpart Bijan Namdar Zanganeh.
The situation resembles the scenario of last year, says Webster of IHS Energy. Then in January through the psychological ceiling of $50 per barrel. the prices by the beginning of summer was fixed at about $65 per bbl., order in July to resume the fall. Adaptive capacity of the American oil industry were a surprise for OPEC, said in February the Secretary General of the cartel Abdalla El-Badri. From 2013 to 2015 the break even American oil producers decreased by 40%, follows from the data of the consulting company Rystad Energy AS. Production in the USA remains at level of 9 million barrels./day even though companies use smaller drilling rigs from Baker Hughes Inc. Due to the decrease in the cost of production, the forecast OPEC, according to which production in countries not members of the organization, will be reduced by 700 thousand Barr./day. this year, it seems “less certain,” said the cartel in its released on the eve of the March review.
Highly adaptive company
After the oil producers in the US have increased their efficiency, price range which allows extraction to remain profitable, has decreased from last year by $10 to $45-55 per barrel., says Olivier Jacob, managing Director of consulting company Petromatrix GmbH. Starting this year, the price rally has already brought drilling companies $10 billion in additional investment, according to Bloomberg. Between South Texas and the Rocky mountains there are plenty of idle wells, where the work may be resumed, as soon as prices recover to the desired level, follows from the data Bloomberg Intelligence. “The highly profitable oil producers that use hydraulic fracturing, will return to work as soon as quotations reach $50, — said in an interview with Bloomberg TV Catherine Mann, chief economist at the Organization for economic cooperation and development (OECD). — These companies are extremely adaptive”.