The Strategist

Oil prices in 2017 and reaction of the US shale industry

12/22/2016 - 16:49

The most discussed topic in today market is potential reaction of the United States oil shale industry to the global agreement on reduction of production volumes. Below are present views of various experts who gave comments on the matter.

Barta IV, Photographer
Barta IV, Photographer
Goldman Sachs. Experts of the investment bank believe that Saudi Arabia has made a serious mistake by assuming that shale production in the United States will not display a tangible reaction to price increases in 2017. Oil prices may rise even above $ 60 a barrel if OPEC members and countries outside of OPEC factually reduce production in accordance with the agreement. On the other hand, recovery of oil shale industry in the United States will force oil quotations to return to 55 dollars per barrel.

Nomura. Gordon Kwan, Head of Regional Oil/Gas Research, said that there is a 50% probability that oil prices gain a foothold above $ 60 per barrel in 2017. Nomura preserves its forecast for 2017 at $ 60 per barrel. Besides, he added that prices should be stable in the range of 70 - 80 dollars per barrel for shale industry in the United States to show a surge of production. Only the end of 2018 will show if activities of the US oil industry may pose a threat to OPEC.

Bernstein. Neil Beveridge, Senior analyst at Bernstein Research Unit, says that $ 60 per barrel is a realistic target for 2017, and so is $ 70 per barrel for 2018. Early next year, the market has come into phase of the supply deficit. In the first half of 2017, excess of demand over supply is expected to reach 800 thousand barrels per day. If the agreement is extended for the second half, the deficit will amount to 1.5 million barrels per day. If oil hangs near $ 60 per barrel, production in the United States will not be able to rise from current levels of more than 500 th. barrels per day.

Wood MacKenzie. Sushant Gupta, Head of Research in the Asia Pacific region, said that average oil price in 2017 will be $ 70 per barrel, of course if OPEC and other oil-producing countries fulfill their promise to cut production by 1.8 mln. barrels per day. Demand for heavy oil will increase significantly in 2017. A large number of processing capacity and new plants has been built or upgraded in Asia. Even without OPEC’s agreement, heavy crude oil demand in 2017 would be faced with a shortage of supply, experts say. 

Barclays. Analysts of the bank, including Michael Cohen, believe that actual reduction in production will not be as great as claimed. Baseline option of Barclays assumes that volume production in Q1 2017, compared to Q4 2016, will be reduced by only 700 thousand barrels per day. Then, in the 2nd quarter, compared to the 1st quarter, production will decrease by 300 th. barrels per day. Volume of production in the US will increase to 360 th. barrels per day by the end of 2017. The bank predicts that average oil price will stick to $ 50 in Q1 2017, and then will rise to 60 dollars per barrel in Q2.