Tuesday , October 23 2018

Value over volume – shale oil directions for 2018!

Kamel Al-Harami

Oil Analyst American shale oil producers are opting for value added returns and for higher and improved oil prices with full coverage and assurance from OPEC and Russia in securing their profits. Even though no one knows the rate that the American producers will push for next year, it however is within their reach to hit one million barrels per day without much difficulty, provided oil prices remain at the $60 and above level.

The recent surge in oil prices because of an end to 400,000 barrels per day of UK’s old pipelines that deprived the markets of this volume, at this time of the year has pushed the barrel price to $65. This is good news for all but more for the shale oil producers’ end of year balance sheet and perhaps of next year too. The vision for 2018 seems promising with oil producing countries proceeding with reduction of 1.8 million barrels per day in order to balance the market and maintain the supply at a comfortable position while getting rid of any commercial surplus, which is estimated to be done by the mid of next year through daily reductions in surplus by 500,000 barrels.

There are uncertainties about the coming year in terms of supply and production in Venezuela, whether it still can go down to below 1.8 million from its historic 2.8 million barrels per day and if most of it will find its way into the USA market. This however will create an imbalance of two different types of crudes, making sweet shale oil type unattractive to USA’s domestic refineries and forcing them to sell it outside the United States.

While the uncertainties cloud the energy market, one thing for certain is that the price will be hovering within the range of $60s, making it the best value for OPEC countries and Russia with their continuing production cuts for as long as it takes. Any level above it will force the shale production to go into full production gear. Meanwhile, other producers like Canada and Brazil are waiting to see better improvements in oil prices again in the market. Every oil producer is looking for better value, and shale oil will be the first to gain on both fronts — volume and value.

By Kamel Al-Harami Independent

email: naftikuwaiti@yahoo.com

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