OPEC, US oil firms expect subdued shale rebound

23 February, 2021 12:00 AM printer

LONDON: The Organisation of the Petroleum Exporting Countries (OPEC) and US oil companies see a limited rebound in shale oil supply this year as top US producers freeze output despite rising prices, a decision that would help OPEC and its allies.

OPEC this month cut its 2021 forecast for US tight crude, another term for shale, and expects production to decline by 140,000 barrels per day to 7.16 million bpd. The US government expects shale output in March to fall about 78,000 bpd to 7.5 million bpd, report agencies.

The OPEC forecast preceded the freezing weather in Texas, home to 40 per cent of US output, that has shut wells and curbed demand by regional oil refineries. The lack of a shale rebound could make it easier for OPEC and its allies to manage the market, according to OPEC sources.

“This should be the case,” said one of the OPEC sources, who declined to be identified. “But I don’t think this factor will be permanent.”

While some US energy firms have increased drilling, production is expected to remain under pressure as companies cut spending to reduce debt and boost shareholder returns. Shale producers also are wary that increased drilling would quickly be met by OPEC returning more oil to the market.

“In this new era, (shale) requires a different mindset,” Doug Lawler, chief executive of shale pioneer Chesapeake Energy Corp, said in an interview this month. “It requires more discipline and responsibility with respect to generating cash for our stakeholders and shareholders.”

That sentiment would be a welcome development for OPEC, for which a 2014 to 2016 price slide and global glut caused partly by rising shale output was an uncomfortable experience. This led to the creation of OPEC+, which began cutting output in 2017.

OPEC+ is in the process of slowly unwinding record output curbs made last year as prices and demand collapsed due to the pandemic. Alliance members will meet on Mar 4 to review demand. For now, it is not seeing history repeat itself.

“US shale is the key non-OPEC supply in the past 10 years or more,” said another OPEC delegate. “If such limitation of growth is now expected, I don’t foresee any concerns as producers elsewhere can meet any demand growth.”


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