As predicted by many experts, the OPEC+ agreement has been favoring American shale oil producers. The export of American oil to Europe has quadrupled. The thing is that the agreement between the OPEC and Russia-led non-OPEC oil producers pushed oil prices high enough to make American shale oil production profitable again.
In the near future, the U.S. oil production growth may lead to the United States to the position of the world’s biggest oil producer to oust Saudi Arabia and Russia. American shale oil companies have already started exporting their oil to Europe pretty heavily. Like we said, the export has quadrupled. The only thing that detains the direct competition with Russia is the fact that most European oil refineries are till incapable of refining American oil. However, this may well change in the near future.
At the same time, international experts a calling it a turning point in the global production of crude oil. The thing is, American shale oil companies have started generating positive cash flows for the first time in a long period of time. They used to borrow heavily just to stay afloat. The first shale oil wells in the USA appeared in 2008. Since then, those companies have collectively borrowed around 300 billion dollars. Last year, they placed their bonds to the amount of 60 billion dollars.
Thanks to the improvement of fracking and other related technologies, the production costs have dropped considerably over the last 10 years to make it a more promising business. At this point, for such companies to stay profitable, crude oil need to cost at least $53/b.
According to the analytic department of NordFX, the WTI futures are trading around $68/b.
At the same time, Pioneer Natural Resources reports that they have succeeded in dropping the production costs all the way down to just $20/b. Developing new shale oil fields allows the USA to boost the local oil production at a record pace. Back in January 2018, they used to produce 102 million b/d, which is an all-time record for the USA. The U.S. Department of Energy expects the local production to boost up to 10,7 million b/d and 11,3 million b/d in 2018 and 2019 respectively. If that’s the case, the USA is going to become the world’s biggest crude oil producer.
The OPEC+ helped American companies to get to the next level
As you probably know, Russia and the OPEC led by Saudi Arabia keep on sticking to their OPEC+ agreement designed to cap their oil production for the sake of restoring the balance in the global market of crude oil and raising oil prices higher through less considerable oversupply.
It’s mostly thanks to the OPEC+ agreement that Brent oil has been trading around $74/b for a while. Donald Trump didn’t share this enthusiasm and blamed the OPEC+ participants for raising oil prices artificially. However, they responded with the fact that apart from the OPEC+, the prices have been moved by a number of other major factors, including the production of shale oil in the USA.
As for the USA, the local oil production has increased by 1,5 million b/d over the last 18 months, which is about the amount that the OPEC+ participants have contracted their production by. Over the period of January through April 2018, American shale oil companies have quadrupled their oil exports to Europe as compared to the same period 12 months ago. With that being said, more and more experts say that the exported American shale oil may well completely make up for the artificial contraction created by the OPEC+ deal.
On the other hand, few refineries are capable of refining the shale oil from the USA, which is why the industry will need extra investments and time to reorient. This means that despite the abundance of shale oil, the global prices on crude oil may drop all the way down to 30-35 dollars per barrel only if there is huge oversupply of Brent and WTI oil. Still, the rise of the US shale oil industry has been raising a lot of concerns among conventional oil producers worldwide.
