“We continue to see the Permian representing the key driver of global oil supply growth for the next five years,” Goldman Sachs analyst Brian Singer wrote to clients on Monday.
US daily output could soon top 14 million
The ferocity of the US shale oil revolution has caught analysts off guard several times over the past decade.
Rystad Energy ramped up its year-end US output forecast by 200,000 to 13.4 million barrels per day. In May, the United States likely produced a record 12.5 million barrels of oil per day, the firm added. All but four million of those barrels were from shale oilfields.
Of course, analysts could have to rein in those blockbuster forecasts if oil prices crash significantly further. That would force American frackers to preserve cash and pull back on production.
OPEC’s production hits five year low
OPEC remains in retreat as the cartel tries to balance the market by putting a floor beneath prices.
“We think that OPEC will at least maintain its output cuts, and maybe even deepen them at their next meeting,” Caroline Bain, chief commodities economist at Capital Economics, wrote in a note to clients on Monday.
Rystad dimmed its projection for Saudi Arabia’s oil production from 10.6 million barrels per day to 10.3 million.
Venezuela, Iran under pressure
OPEC’s output could be further hurt by problems in some of its member countries.
Iran’s oil exports have plunged because of US sanctions. The years-long collapse of Venezuela’s oil industry has been accelerated in recent months by US sanctions and sprawling blackouts in the South American nation.
“There appears little prospect of a recovery in output from Iran or Venezuela any time soon,” Bain wrote.
Violence is also threatening oil production in Libya and Nigeria. All told, Rystad Energy estimates 1.3 million barrels per day of oil production is at risk in those four OPEC nations.
“Risks to short-term supply are undoubtedly still plentiful,” Rystad analyst Bjørnar Tonhaugen said in the report.
Will crude slide below $50?
Despite all this, analysts aren’t predicting a spike in oil prices. If anything, forecasters are bracing for more pressure on prices, due in part to robust US production.
Brent, which has tumbled about 15% since late April to $63 a barrel, should finish the year at around $60 a barrel, according to Capital Economics.
US oil prices, trading at about $54 a barrel, are down nearly 19% since late April. Recent selling has been driven by a spike in oil inventories that suggest demand for crude is deteriorating.
Goldman Sachs said that a reversal in the oil demand metrics will be required to prevent US oil prices from sinking below the $50-$60 range.
“Our real concern is over demand weakness,” consulting firm Facts Global Energy wrote in a report on Monday. “Have we entered an era where demand will keep falling and we have a lot more oil on our hands than expected?”