Shale oil output in the United States is rising much faster than expected and gaining market share globally, increasing the risk of a “volume war” with OPEC and weaker oil prices, the founder of oil and gas consultancy Rystad Energy said.
Rystad Energy expects U.S. shale oil output to grow by 100,000 barrels per day (bpd) each month for the rest of this year and into 2018 if oil prices hold around $50-$55 a barrel, well above estimates by the U.S. Energy Information Administration for monthly gains of about 29,000 bpd in 2017 and 57,000 bpd in 2018.
“We see a risk for a weaker oil price towards the end of the year … because shale is delivering so much oil and OPEC might fight back,” Jarand Rystad told Reuters earlier this week.
Strong returns in the shale sector are pulling in fresh investment, while round-the-clock drilling and new rigs are boosting production, he said.
Fast-growing shale oil output is adding to the dilemma faced by OPEC and other non-OPEC countries like Russia as they consider whether to extend output cuts into the second half of this year or boost volumes in a bid to regain market share.
“A volume war is if they do not extend the production cuts and bring all the fields back into production,” Rystad said, referring to oilfields that have been shut for maintenance as Middle East producers comply with production cuts.
A boost in Middle East output would most likely hit mature basins in Southeast Asia or in the UK North Sea more than U.S. shale producers because of their high investment costs, said Wood Mackenzie’s global exploration analyst Andrew Latham.
“It will take an almighty price war to really shut down the sweet spots of the (U.S.) Permian because the well production is so good and the breakevens are so low,” Latham said.
U.S. shale oil output was set for its biggest monthly rise in more than two years in May, government data showed this month, jumping by 123,000 bpd to 5.19 million bpd.
Total chief executive Patrick Pouyanne warned last week that the rapid increase in shale output could push oil prices down again by year-end.