Opec’s decision to extend output curbs by nine months and its “impossible to reach” inventories target is leaving the door open for US shale producers to grab more market share, according to Goldman Sachs Group Inc. Saudi Arabian Energy Minister Khalid al-Falih’s acknowledgement that the cuts would make room for American shale to grow until it peaked and declined was “surprising,” analysts including Damien Courvalin wrote in a note. The group’s target for reducing OECD crude inventories would require more than doubling the size of the current reductions, they wrote. “Opec is committing to a large and long cut with an elusive inventory target but with no exit strategy,” the analysts wrote. “The acknowledgement that the cuts are to compensate for shale growth rather than weak demand imply a policy that will seek to keep prices above marginal costs.”
The shale boom has boosted US oil production from 6.8% of the global total in late 2011 to around 12% at the end of the first quarter of 2019, according to official data. The rise of fracked crude has made the world’s largest economy a lot less reliant on the Middle East for its energy needs. The decision by the Organization for Petroleum Exporting Countries creates a clearer downside risk to Goldman’s forecast for Brent to average $60 a barrel next year, the lender said. However, it could introduce upside risk to estimates of $65.50 a barrel and $62 for the third and fourth quarters of this year. The lender also said it sees an “apparent case” for steep backwardation – where prompt prices surge against later shipments – given the overly aggressive stockpiles target. US crude output soared to new heights in April. A government report last week showed US production grew 2.1% in April to 12.16mn barrels a day. Booming shale production from places like the Permian basin of West Texas has enabled US oil output to overtake Saudi Arabia and Russia.
Sources and photo-credits: Gulf Times, Bloomberg