The decline forecast Mar. 16 by the oil cartel comes about three years earlier than a previous outlook, in which it said it didn’t expect American production to decrease until 2018.
It also differs from a report by the International Energy Agency (IEA) that claims US production remains strong as drillers focus on their most abundant oil fields and that the end of 2015 would see only a production slowdown, not a decline. (Related: Middle East Oil Addiction Could Spell Disaster)
Nevertheless, the IEA report, issued March 13, caused an immediate and noticeable drop in the average global price of oil.
Whatever happens will come too late to guide any decisions OPEC may make at its regular meeting in June. It was at its last meeting on Nov. 27 that the cartel decided not to cut overall production below 30 million barrels per day which would have helped shore up tumbling prices.
By keeping production at 3-year-old levels at the November meeting, OPEC instead sought to drive oil prices low enough to make unconventional and expensive oil production, including output from shale, unprofitable and thereby reclaim the market share that OPEC had recently lost. (Related: Saudi King Promises To Protect Against Oil Price Slump)
In its latest monthly market report, OPEC said that a fairly rapid slowing of the growth in the output of US oil eventually would lead to “a drop in production [that] can be expected to follow, possibly by late 2015,” primarily due to the reduction of rigs in service.
Further, it said the halving of oil prices since late June 2014 “could impact marginal barrel output from unconventional sources such as tight crude,” a term for shale oil, which is tightly packed in underground shale deposits. As a result, it said, US oil production is on a path to grow by only 820,000 barrels a day in 2015, compared with 1.61 million barrels per day last year. (Related: Saudi Exec Expects $1 Trillion Drop In Energy Investments)
“Tight crude producers are aware that typical oil wells in shale plays decline 60 percent annually, and that losses can only be recouped by drilling new wells,” the market report said.
According to the OPEC report, though, none of this will happen before the cartel’snext meeting, scheduled for June 5 in Vienna. At best, the cartel’s 12 oil ministers probably will be able to do no more than estimate the effectiveness of their strategy to reclaim lost market share.
But OPEC holds no illusions that rising demand will restore the value of its oil output. Global demand for oil has been slow in the past year, primarily in China and Europe, and the Mar. 16 report forecast no change for the rest of 2015.
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