US shale oil boom is coming to an end — expert
Tighter supply likely to push prices slightly higher even as demand growth slows
Dubai: A few years after disrupting the supply side of the oil market, the days of growth in US shale oil production may be behind us, experts say.
A report from the Energy Information Administration shows projections for a slower increase in the production of shale oil by the end of 2020.
Ole Hansen, head of commodity strategy at Saxo Bank, said this is likely to mean a rise in oil prices next year even as demand slows down.
“I can see prices 10 per cent higher this time next year, and that will be based on a slowdown in US production and continued tight monitoring of supply from Opec [Organisation of Petroleum Exporting Countries] and Russia,” he said in an interview.
Brent crude oil is now trading at around $62 (Dh227) a barrel, having been on the rise throughout 2019. Brent prices jumped from $52.2 at the end of last year to a high of $72 in May, driven by factors that include production cuts from Opec and geopolitical tensions that hurt supply.
Hansen said he expected to see tight supply from GCC countries, especially as Saudi Aramco prepares to publicly list shares soon. Over the next three months, prices are likely to continue trading around $60, he added.
As for US oil production, Hansen pointed that shale isn’t quite the oil that refineries are looking for anyway because of its “very high quality.”
“Even though barrel for barrel, [US producers] may have enough barrels produced, it may be the wrong barrels. Quality is key, and the quality of the oil produced in the Middle East, in Canada, and in Russia is much more suitable [for refineries],” he said.
On the demand side, forecasts point to 1.2 million barrels per day for 2020.
“That might, in our view at this stage, be a little bit optimistic. Demand growth is more likely to be on the low side of a million rather than on the high side of a million [barrels per day],” Hansen said.