OPEC and shale Producers are interested in further dialogue - OPEC Secretary General

Emmett Rice
March 9, 2018

U.S. steel makers have largely abandoned this niche market in favour of higher volume products with less rigorous quality specifications.

The rising demand for oil has "unleashed a new wave of growth from the USA", according to the IEA.

So the higher cost of imported product is unlikely to generate a surge of new domestic supply.

West Texas Intermediate (WTI) crude futures for April delivery fell $1.45 to settle at $61.15 a barrel. The project is still awaiting approval from Minnesota. Still, Canadian producers should be able to increase shipments to US refineries, assuming completion of new pipeline projects like TransCanada Corp.'s Keystone XL and Enbridge Inc.'s Line 3. The IEA does not expect either of the pipelines to be ready before 2021.

The lack of export space has helped contribute to the sell-off of oilsands assets from Shell, ConocoPhillips and Marathon Oil and the lack of new development approvals, said the IEA.

In addition, another 400,000 bpd rail capacity can be quickly commissioned by companies to pick up the slack.

US crude oil and stock index figures shifted lower Wednesday amid global market fears on a trade war, the resignation of President Donald Trump's chief economic adviser and rising inventories.

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OPEC supply to grow by only 750,000 b/d in next five years. Output hit a record 10.057 million bpd in November, according to the US Energy Department. However, the country's more stringent policies to curb air pollution may slow growth.

The IEA sees demand for OPEC oil declining in absolute terms over the next few years as it is edged out of the market by non-OPEC supply.

"We assume OPEC/non-OPEC market management remains in place, at least in the early part of the forecast (2018-2023), with officials signalling a willingness to institutionalise their partnership". And with US production expected to keep surging, OPEC's caps may prove less effective in boosting prices. We keep hearing that shale oil will be the savior and bring OPEC to its knees, but the actual supply data is telling a much different story.

In its flagship publication, World Energy Outlook-2017 issued last fall, IEA said resilient shale and tight resources production had cemented the United States as the biggest producer in the world.

Beyond that, however, the agency warned that oil supply could become tight unless investment in new production rebounds from historic declines in recent years.

"The oil industry has yet to recover from an unprecedented two-year drop in investment in 2015-2016, and the IEA sees little-to-no increase in upstream spending outside of the United States in 2017 and 2018". "It does appear as if we need more evidence that the rebalance continues to really ignite a rally again". Do uncertainty over shale and bullish forecasts for electric vehicles cloud their investment strategies, even if they realize that higher prices in the future are a stark possibility? "That is the equivalent of replacing one North Sea each year", according to the IEA.

The rise of the United States and the slightly weaker prospects for global demand growth are not particularly good news for the OPEC.

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