LONDON – Eight months into OPEC’s plan to hit rival oil producers, the casualties are mounting. Surprisingly, the most resilient may be the one that triggered the fight: the United States.
Projections for combined daily output from Brazil, Canada, Russia, Mexico and Colombia by the end of the decade were cut by 2.8 million barrels since oil slumped last year, data from the countries and the International Energy Agency show. In contrast, the U.S. Energy Department increased its estimate for crude output in 2020 by more than a million barrels.
Prices fell more than 45 percent in the past year after the Organization of Petroleum Exporting Countries refused to cut output, instead pressuring rival producers to eliminate a global supply glut. While the number of active U.S. oil rigs has halved, production remains close to a three-decade high and is forecast to keep growing after a pause in the coming year. Projects elsewhere will suffer more, according to Standard Chartered PLC and BNP Paribas SA.
“Some have misinterpreted OPEC’s strategy as targeting U.S. shale oil production,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas in London. “But any attempt at shutting down U.S. shale oil will prove futile. Rather, OPEC has aimed at crowding out investment in higher cost and less efficient conventional basins.”
Brent crude futures, a global benchmark, fell 31 cents to $56.61 a barrel on the London-based ICE Futures Europe exchange at 10:08 a.m. New York time. The market remains “massively oversupplied,” the IEA said July 10.
While U.S. drillers are in retreat, their flexibility and declining costs will help them endure, said Torbjoern Kjus, an analyst at DNB in Oslo.
U.S. shale-oil output will slide by 91,000 barrels a day in August, the biggest monthly pullback since the start of the boom in 2007, the Energy Information Administration said this week. That follows a 61 percent drop in the number of active drilling rigs between December and June, Baker Hughes Inc. data show.
“U.S. production has flattened out and stopped growing,” Mike Wittner, head of oil market research at Societe Generale in New York, said by email Thursday. “Shale is decreasing. You ignore that at your peril.”
While the expansion in U.S. shale output is set to halt over the next 12 months, the nation’s total oil production will keep growing thanks to offshore fields and liquids extracted from natural gas, according to the IEA. The shale industry is making “steep cost reductions,” and growth will resume by the middle of 2016, the Paris-based agency says.
Average U.S. crude output for this year will still climb to a 45-year high of 9.47 million barrels a day, according to the EIA. In April, the agency raised its 2020 crude-output forecast to 10.6 million barrels a day from 9.55 million previously, citing better technology and the ability of explorers to move to the most prolific oil-field “sweet spots.”
The resilience of U.S. shale output has surpassed OPEC’s expectations for the past five years, and the industry is “here to stay,” Fadel Gheit, an analyst at Oppenheimer & Co., said in an interview on Bloomberg Television’s “Surveillance” with Tom Keene on July 10.
Brazil and Canada are among those “most in the firing line” at current prices, Paul Horsnell, the head of commodities research at Standard Chartered in London, said July 13. Brazil’s so-called pre-salt offshore fields, and Canada’s tar sands are “frontier” oil provinces where costs are higher because of their technical complexity or remoteness, he said.
