Boosted by shale industry, rising U.S. production could undermine OPEC’s efforts to shore up oil prices An offshore oil platform is seen in Huntington Beach, Calif. The International Energy Agency said in its monthly report that it expects U.S. oil production to overtake Saudi Arabia’s in 2018. PHOTO: LUCY NICHOLSON/REUTERS By Christopher Alessi Updated Jan. 19, 2018 3:10 p.m. ET 138 COMMENTS U.S. crude-oil production this year is expected to surpass Saudi Arabia’s and rival that of Russia, the world’s two largest oil producers, the International Energy Agency said Friday, raising the prospect that a booming crude market could cool off. Boosted by a resurgent shale industry, U.S. crude production will likely climb above 10 million barrels a day in 2018, which would top the high set in 1970, the agency said in its closely watched monthly oil market report. The IEA raised its outlook for U.S. crude supply this year by 260,000 barrels a day, to a record 10.4 million barrels a day, largely a result of the recent rally in crude prices. Surpassing Saudi Arabia would mark another symbolic milestone for U.S. oil producers, who, driven by shale-focused companies, have capitalized on rising prices this year. It represents another development in the tug of war between shale producers and the Organization of the Petroleum Exporting Countries, which coordinated an output cut among 24 countries that trimmed about 2% of global oil supply in a bid to raise prices last year. RisingU.S. production of crude oil is expected tosurpass 10 million barrels a day in 2018.Crude-oil productionSource: International Energy Agency .million barrels a dayUnited StatesRussiaSaudi Arabia2010’12’14’164681012 The question that has preoccupied oil investors lately isn’t so much whether shale production will rise, which had always seemed assured. The question is how much and whether it will be enough to overwhelm demand or weaken OPEC’s resolve and send prices spiraling again after closing above $70 a barrel this month for the first time since 2014. The IEA figures were sobering to an oil market that has been propelled to three-year highs by steadily tightening supplies, unexpected disruptions and amped up geopolitical tension in some parts of the world. It followed a prediction from the U.S. Energy Administration earlier this month that U.S. production would average 10.3 million barrels a day this year. U.S. crude futures recently fell 71 cents, or 1.1% to $63.24 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 74 cents, or 1.1%, to $68.57 a barrel on ICE Futures Europe. “The crude-oil equilibrium price is most probably closer to $50 a barrel,” said Vincent Elbhar, managing partner at GZC Investment Management in Zug, Switzerland. Some analysts say the market is vulnerable to a cascading selloff. RELATED Oil Falls After IEA Points to Rising U.S. Production Five Potential Risks to the Oil Rally OPEC, Other Producers to Extend Cuts Through 2018 U.S. production offset around 60% of production cuts from OPEC and allies like Russia, the IEA said. With growth of 600,000 barrels a day last year, the U.S. shale industry “beat all expectations,” benefiting from higher oil prices and “cost cuts, stepped up drilling activity and efficiency measures enforced during the downturn,” the IEA added. Hedge funds and other speculative investors have assembled record large net bullish positions on oil futures, which has helped push prices higher. When that’s the case, any trigger can lead to a mass exit and exacerbate a selloff, analysts said. However, shale’s rise is going up against an array of strong forces pushing oil prices higher. U.S. crude exports—mostly illegal until a couple of years ago—and OPEC’s production cuts have helped draw down American inventories. A strong global economy has buoyed demand. Venezuela’s oil production has fallen steeply after years of mismanagement and underinvestment. President Donald Trump’s threats to undo the nuclear deal with Iran have raised the prospect of one million barrels a day of Iranian crude leaving the market. Michael Wittner, global head of oil research at Société Générale, said he thinks oil prices could be poised to fall, but not necessarily because of climbing U.S. output. More likely, he said, some of the temporary factors that have pushed prices higher, like escalating geopolitical tension and cold weather, could ease. “Right now, everything’s flashing red. Usually something or another is going to cool off,” Mr. Wittner said. Still, analysts and investors have become steadily more optimistic about oil prices this year. Analysts at Bank of America Merrill Lynch this week raised their forecast for 2018 oil prices by $8 a barrel, to $64 a barrel for Brent and $60 for West Texas Intermediate, on the expectation that demand will outstrip supply by more than expected. “We’re in buy-the-dip mode,” said Michael Hiley, head of over-the-counter energy trading at LPS Futures LLC. Whether it sinks prices or not, new U.S. production is needed to “to maintain the balance in the global oil market,” said Paal Kibsgaard, chief executive of Schlumberger Ltd., the world’s largest oil-field services company, on a call with analysts and investors Friday. “After a full year of waiting, the oil market is now substantially rebalanced,” he said.
I saw the charts pointing to a decline in oil prices and this may be the catalyst. I saw also a strengthening dollar coming, which would also depress oil prices.