Abu Dhabi: A rise in US shale production and plans by the Organisation of Petroleum Exporting Countries (Opec) to gradually ramp up production are both expected to have a bearish impact on oil prices, analysts have said.
Russia and Saudi Arabia announced last week that they were considering lifting production to replace the involuntary loss of around 600,000 barrels per day of crude from Venezuela and Angola since the current production cut deal was introduced at the beginning of 2017.
Ehsan Khoman, director, head of research and strategist for the Middle East & North Africa (Mena) at MUFG Bank, said they remain committed to their structurally bearish medium-term oil price thesis due to rise in shale production and Opec plans to raise production in an effort to stabilise oil prices.
“First, the transformative impact that the shale revolution has had, and will continue to have, remains the key game changer on global oil supplies,” he said, adding that faster learning rates, productivity gains, lower tax rates, project redesigns as well as access to low-cost funding will continue to drive engineering cost deflation in the shale industry.
He also said Opec’s exit strategy, through the gradual phasing in of production cuts, will further raise market imbalances, with supply growth outstripping demand growth once again, prompting fundamentals to add further downward pressure on prices.
Oil prices were trading lower when markets closed on Friday. Brent, the global benchmark, was down 0.99 per cent to trade at $76.79 (Dh282) per barrel while West Texas Intermediate (WTI) was at $65.81 per barrel, down 1.83 per cent.
Ole Hansen, head of commodity strategy at Saxo Bank, said the recent decision to work towards increasing production came after the first signs of rising crude oil prices began threatening to hurt demand.
In a report last month, the International Energy Agency said that there would be a slowdown in global demand growth in the second half of 2018, largely due to higher oil prices.
“The negative demand growth impact of rising crude oil prices could potentially make it easier to sell the idea of raising production to other members of Opec [and] non-Opec when they all meet in Vienna on June 22,” Hansen said.
“While crude oil could be settling into a range [as] we await the decision, the gulf between Brent and WTI crude continues to widen. The spread between the two global benchmarks now exceeds $10 per barrel — the widest in more than three years.”
