February 3rd 2015
Price predictions for crude have taken another cut but are well above current prices and oil markets are already looking to be significantly tighter in the second half of this year as the “moderation” in US shale oil takes effect, say analysts.
Saudi Arabia, in particular, may be “changing its tone” regarding OPEC production levels, which will be a key factor at the cartel’s upcoming meeting in June.
The larger-than-expected fall in oil prices from December to January and record Iraqi production have prompted Pareto Securities’ oil specialists to shave around another 13% off their previous forecast.
This week, their Brent forecast fell to $65 per barrel (from $75) for 2015, to $75 per barrel (from $90) for 2016, to $85 per barrel (from $95) for 2017 and to $90 per barrel (from $95) for 2018.
After OPEC’s decision last November to maintain production levels, the fall from previous expectations has been rather steep. For example, as recently as October Pareto had cut its forecast to $100 per barrel (from $115) for 2015 and to $105 per barrel (from $120) for 2016.
One of the stated objectives of OPEC’s decision was to maintain market share against rising US shale oil and that “shale moderation” is said to be underway.
“With the collapse in oil prices in recent months, prices are now below all-in break-even levels on a full-cycle cost basis for most US shale plays. US oil rigs have already dropped by 24% to 1,223 from the peak of above 1,600 in October 2014. We now expect to see a drop by 40% to 960 by the end of the first half of 2015,” wrote the analysts.
With Iraqi production hitting a record four million barrels day (mpd) last month and US production expected to be flat in the second and third quarters, OPEC is gaining market share.
The analysts at Pareto expect a “significantly tighter” oil market in the second half of this year, as they estimate the “call on OPEC” to be at 30.7 mpd against OPEC production at 30.5 mpd and the OPEC production ceiling at 30 mpd.
For the June meeting, once the ministers see non-OPEC investments and production falling, especially in the US, they are more likely to enforce compliance with the production ceiling, say the analysts.