190816 us shale oil
US oil and gas activity is showing signs of revival after being forced to a halt by record low oil prices earlier in 2020. Image Credit: Reuters

Dubai: US oil and gas activity is showing signs of revival after being forced to a halt by record low oil prices earlier in 2020, while geopolitical factors and below break-even prices will weigh on Middle East producers.

Analysts expect Iran and US to reach an agreement, which will bring Iranian oil back into the global supply. However, a “comprehensive” deal is likely to take time, according to a Bank of America (BofA) report.

“As such, any material return of Iranian oil to global markets is unlikely near-term,” it added.

Iran’s elections in focus

The report added that the Islamic Republic’s usable reserves could now be as low as $9 billion, making its ability to maintain the status-quo uncertain. “A key date could be June 2021 when Iran is scheduled to hold presidential elections - the leaning of the next Iranian president could provide a key signal about the Iranian regime intentions”

Tepid recovery for Saudi Arabia

Saudi Arabia will see a “relatively shallow” recovery in 2021 dampened by low oil prices, crude oil output restraints within the OPEC+ deal and fiscal consolidation, said BofA.

The report also noted that the Kingdom’s pre-budget statement suggests a more “conservative” budgeted oil prices assumption for the period 2021 to 2023, compared to a year earlier. “This is because the broadly unchanged revenue targets likely stem from the lower assumed oil revenues, given the potentially higher non-oil revenues on the back of the measures introduced this year”

Meanwhile, world’s most valuable oil company Saudi Aramco can rely on debt financing until the OPEC+ agreement expires in the middle of 2022, said BofA, adding that if oil markets were to tighten at that point Aramco would be the only oil company that can deploy “meaningful” spare capacity at zero cost.

Spare capacity is the volume of production that can be brought on within 30 days and sustained for at least 90 days

US shale may surprise

Activity in the country’s oil and gas sector jumped in the fourth quarter, according to the Dallas Federal Energy Survey, which reached out to executives in the sector.

The business activity index—the survey’s broadest measure of conditions facing Eleventh District energy firms—moved into positive territory, rising from -6.6 in the third quarter to 18.5 in the fourth quarter.

“This is the first positive reading for the business activity index since first quarter 2019, with the increase driven by both E&P (exploration and production) and oilfield services firms,” said the regulator.

On buyer’s end

US official crude Inventories fell by a much larger-than-expected 6.5 million barrels overnight. Along with a weak Dollar and vaccine-related optimism, Brent crude closed up at $51.80 a barrel on Thursday, while US crude (WTI) stood at $48.30.

“Assuming that the Georgia Senate elections on Tuesday pass without incident, the technical picture suggests that Brent crude is poised to break resistance at $52.50 a barrel, extending gains to $54.00 a barrel initially,” said Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.

“Similarly, WTI seems set to rise through $49.50 a barrel targeting a move that could extend above $54.00 a barrel in January - only a fall by Brent through $49.00 a barrel, and WTI through $46.00 a barrel suggests a rally delay,” Halley added.