As a sustained upward trend in U.S. shale growth continues, industry analysts predict it will offset the current production problems in the near future. In recent months the energy market has been heavily influenced by a series of demand-side developments, and investors are continuing to monitor the escalating trade conflicts between the United States and China, as well as the financial crisis in Turkey coupled with the strong U.S. dollar for their effect on the market. Turkey’s problems, while important globally, have perhaps not received the coverage they deserve. In the last few months the Turkish lira has plummeted in value against the U.S. dollar. This makes Turkey’s loans (which are often paid in U.S. dollars) more expensive to pay back; if the lender banks don’t receive their money, their balance sheets become stressed and they lose the ability to continue to lend which increases the interest rates in countries beyond Turkey.
With all these developments, industry insiders believe that the U.S. shale boom is possibly the most notable supply consideration that is going underreported in the news. As one oil analyst stated,
“The explosion in U.S. tight oil production has long been the dominant supply catalyst within the energy complex but now finds itself at the tail end of concerns. Even so, its ascent continues apace.”
In addition, the American Petroleum Institute (API) reported that U.S. crude stocks rose by nearly 4 million barrels per day in the week to August 10, reaching approximately 410.8 million barrels. While many have been skeptical of U.S. shale in recent months, insiders stress that the U.S. shale patch is in its best economic shape ever, and the trend is still very much is the upward direction.
Back in 2014, oil was selling at near $120 per barrel, but started to decline due to weak demand, the strong dollar, and increased U.S. shale production. Additionally, OPEC had been reluctant to reduce output which further lowered prices by flooding the market. But in late 2016, OPEC began to curtail production.
Investors are keeping an eye on several factors that they believe could affect pricing, such as potential supply disruptions to Iranian crude exports and a ramp up in production by OPEC members and partners. A key question facing the market in the medium term is how much longer the United States oil supply growth can continue to offset weaker production outcomes throughout the rest of the world. At least one analyst estimates that without the U.S. crude production, the world’s supply deficit would likely increase to approximately 5.3 million barrels per day over the next five years. But, because the U.S. crude supply is not significantly affected by politics or ageing oil fields—issues that often plague other major producers—many are optimistic that the Unites States’ supply will fill the supply gap. Needless to say, all of this presents great opportunities to U.S. players in the industry that hopefully we all can take advantage of.