WTI Tumbles To $62 Handle After IEA Predicts "Explosive" US Shale Production As Oil Prices Surge

Update: The IEA report has impact prices - as would be expected - sending WTI back below the crucial support level of $63 once again...

https://www.zerohedge.com/sites/default/files/inline-images/20180118_WTI.png

With WTI Futures net long positioning at extreme longs, one wonders if $63 can hold.

 

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Overnight, the International Energy Agency became the latest entity to recognize that 2018 is shaping up to be a pivotal year for energy production in US shale fields, and a showdown between OPEC and non-OPEC producers, namely those in the US.

According to the latest IEA report, US shale output is poised for "explosive" growth in 2018 as WTI trades at its strongest level since the summer of 2015, which in turn will unleash pent up US output, potentially leading to a sharp oversupply of black gold,

As Bloomberg  notes, the IEA's forecast supports OPEC's own projections: As we pointed out yesterday, the cartel also expects US production to ramp up in 2018 as shale producers - much more lean and efficient and significantly delevered after the 2015/2016 "episode" - unleash output as oil price continue to rise well above the generally accepted shale breakevens in the low $50s.

OPEC

The IEA boosted its forecasts for non-OPEC supply growth this year by 100,000 barrels to 1.7 million barrels a day compared with last month’s report, modestly higher than OPEC's projections. It also warned 2018 could be a “volatile” year as Venezuela's energy industry teeters on the brink of collapse.

Both OPEC and IEA expect Venezuela's difficulties to continue after Latin America's socialist paradise brooked the biggest unplanned production decline of 2017.

“The big 2018 supply story is unfolding fast in the Americas,” the IEA said in its monthly report. “Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico.”

"Given Venezuela’s astonishing debt and deteriorating oil network, it is possible that declines this year will be even steeper than the 270,000 barrels a day in 2017," the report said. The country’s output last year was 1.97 million barrels a day, the lowest in nearly 30 years."

"Yet, the IEA doesn’t see a “clear sign yet of OPEC turning up the taps to cool down oil’s rally” to “compensate for a precipitous drop in supply from Venezuela."

Offsetting the Caracas crash, the agency raised its forecast for U.S. oil production growth this year by 240,000 barrels a day to 1.35 million barrels. At this rate, US crude output is on track to surpass oil giants Saudi Arabia and rival Russia in the not too distant future.

WTI and Brent traded lower Friday after the DoE inventory data Thursday evening and the two oil market reports cited above.

OPEC

With oil prices on the rise, OPEC and its non-OPEC partners are again meeting in Oman to review their strategy for clearing the global oil glut amid pervasive doubts about the efficacy of the bloc's production cuts. Ministers from the United Arab Emirates, Iraq and Kuwait have said the deal needs to continue. Russia’s Energy Minister Alexander Novak has said talks this weekend could hammer out a plan for gradually retiring the supply cuts after the agreement concludes at the end of 2018.

Meanwhile, US tech innovation in the shale space is making US companies increasingly more competitive, pushing breakeven prices lower by the day, and stealing increasingly more market share from OPEC - which is desperate for higher oil prices to replenish plunging state reserves - with every passing day.

Comments

NotApplicable toady Fri, 01/19/2018 - 10:23 Permalink

Toady, I think the driver here are those betting on full-blown war in the ME disrupting supply, and perhaps some "unseen forces" propping up the price so their friends survive until this reality finally emerges.

As it sure as fuck ain't demand growth!

In reply to by toady

Davidduke2000 wchild Fri, 01/19/2018 - 08:23 Permalink

game changer alright, hollowing your cities and states to get cheap oil is a disgrace, it's like using the wood of your house for heat in the winter.

I knew a big chunk of americans are NOT  the sharpest tool in the shed, but to celebrate their own destruction is beyond anything I have seen.

I keep wondering why deagel.com forecast a drop of 270 million  in the population of the us in 2025, well this could be part of the answer. 

http://www.deagel.com/country/United-States-of-America_c0001.aspx

In reply to by wchild

Davidduke2000 Arnold Fri, 01/19/2018 - 09:23 Permalink

I will never drive an electric car and for sure will never be in a  self driving tomb.

In Canada we pay $1.30 per liter of gas x4 = $ 5.20 per gallon, yet we are net producer of oil, preserving the natural resources for the new generations is our duty.

the us is a net importer of oil even though it manages to squeeze few rocks to get some oil, now it will contaminate the pristine waters of Alaska to get some cheap oil.

I did not count  the oil the us purchase for all its military bases all over the world  and for the huge naval flotillas roaming the planet, the imports must be astronomical.

why not drive cars that consume less gas?? 

In reply to by Arnold

Cloud9.5 Arnold Fri, 01/19/2018 - 09:39 Permalink

You are probably correct if the U.S. population drops down to Degal’s projected 54 million.  I lived in a town with a coal fired power plant.  If the wind was right when mom hung out the wash, it came back in dirty and she had to wash again.  I have not seen any successful battery powered big rigs.  The battery powered future you imagine will have most people riding bicycles, not that that is a bad thing.

In reply to by Arnold

MK ULTRA Alpha Arnold Fri, 01/19/2018 - 08:10 Permalink

US crude oil production of 12 million to 14 million barrels per day over the next three years from the present estimated 11 million barrels per day, however, all data is not in, other reports say the same, US production is near the 11 million barrels per day estimate, but official estimate is above 10 million barrels per day.

The US is close to or has replaced Saudi Arabia as number two crude oil producer. However, if the rumors of estimates of 11 million barrels per day are close to being accurate, then Russia will be number two and the USA will be number one over the next three years. Perhaps Russia wants out of the OPEC agreement to compete for market share. 

In reply to by Arnold

MK ULTRA Alpha hardcleareye Fri, 01/19/2018 - 13:39 Permalink

What an ignorant comment. Have you heard of Google, write what you're asking in Google search box, then hit news, there will be plenty of articles on US crude oil production. 11 million barrels per day estimate, is an estimate of an crude oil traders podcast community. The over 10 million barrels per day by Feb 2018 is the official estimate.

Discoveries over the last three years have been left in the ground, a huge number of wells are being worked for production, no need to drill, well needs completion. The pipeline dynamic is also at play, the more pipeline the more oil flowing to market.

Because of these reasons, the podcast crude oil speculation community is giving a higher estimate of 11 million barrels per day.

All you have to do is read, get rid of your television and read. The reason you make jokes about a subject is because you don't know nothing about the subject, but because you're a momma boy wanting attention, your television mind, the fantasy mind which uses fantasy logic can't comprehend reality. It's all television jokes and the recorded laugh tape, laugh on cue. The television conditioned mind can't use logic.

In reply to by hardcleareye

NDXTrader Fri, 01/19/2018 - 07:56 Permalink

6% growth for a relatively new industry is hardly “explosive”. In fact, it’s pretty disappointing. 100,000 bpd is about what LA alone uses. You guys short $WTIC?

hardcleareye venturen Fri, 01/19/2018 - 10:14 Permalink

You have been drinking to much kool aide...  lol

Our oil production (USA) peaked in 1970 at 9637 thousand barrels of oil per day... today it is around 8857 thousand barrels of oil per day.  But there is a big difference between the oil extracted in the 1970 to 2017... 

The EROI for production of the oil and gas industry was about 20:1 (for every 20 barrels extracted from the ground you have to burn one to get those 20) from 1919 to 1972. In 2017 it is currently around around 11:1 to 8:1.

What that means is your NET production, in 1970 was around 9155 thousand barrel per day... compared to 2017 Net Production of 8051 thousand barrel per day ( and that number is generous, with many gray haired old timer familiar with the reserves and the industry saying it is bullshit and is much lower)

With regards to power plants phasing out the used of oil... well lets just say that the most recent EIA Dec 2017 report DOES NOT support your statement ... as a matter of fact it is just the opposite....  solar is 2 percent of total generation and wind is 7 percent... 

Sometimes stupid can't be fixed... but if you want to read the report for your own "lying eyes" it can be found here

https://www.eia.gov/electricity/monthly/current_month/epm.pdf

In reply to by venturen

thatthingcanfly Fri, 01/19/2018 - 08:06 Permalink

See what they did here:

"...on track to surpass oil giants Saudi Arabia and rival Russia..."

Everybody got that!? SA is an "oil giant," while Russia is a "rival." No brainwashing going on there at all!

hardcleareye thatthingcanfly Fri, 01/19/2018 - 10:24 Permalink

If we are talking about Proven Reserves of Crude Oil... the numbers are as follows..

Rank, country, BBL of Proven Reserves,date of data

Venezuela   300,900,000,000    1 January 2017 est.

2  Saudi Arabia  266,500,000,000  1 January 2017 est.

3   Canada        169,700,000,000   1 January 2017 est.

4    Iran       158,400,000,000    1 January 2017 est.

5   Iraq     142,500,000,000     1 January 2017 est.

6   Kuwait    101,500,000,000     1 January 2017 est.

7   United Arab Emirates    97,800,000,000    1 January 2017 est.

8   Russia  80,000,000,000      1 January 2017 est.

9   Libya      48,360,000,000       1 January 2017 est.

10   Nigeria     37,060,000,000      1 January 2017 est.

11   United States    36,520,000,000    1 January 2017 est.

12  Kazakhstan   30,000,000,000    1 January 2017 est.

13   China    25,620,000,000     1 January 2017 est.

 

Hmm if Russia is a "rival" with roughly a quarter of the reserves of Saudi Arabia.. what do you call the US... lol

What do you call someone who talks big and exaggerates etc etc?

In reply to by thatthingcanfly

Fireman Fri, 01/19/2018 - 08:07 Permalink

More "shale oil miracle" garbage. The only thing sustaining the illusion of the so-called USSAN energy bonanza BS is the entire Ponzi scam swamping the Wall St sewer behind the fake "economy" of war and debt without end on Chinese credit. And then with fewer than a half a dozen LNG plants barely functioning the Europeons are supposedly going to pay triple prices to get USSAN gas shipped to Urupp instead of continuing with guaranteed problem free Russian supplies.

 

The only viable gas being produced from squeezing rocks is the gas coming from the corrupt hubris bloated morons in Washing town. When the Jim Willie Scheisse dollah post reset finally becomes the local currency USSANS will be lucky if they can still afford their Chinese stuff at the Peoples Walmart feeding kitchens.

 

the gas "miracle"

https://instituteforenergyresearch.org/analysis/u-s-become-major-lng-ex…

bshirley1968 Fireman Fri, 01/19/2018 - 08:55 Permalink

+1000, and then some.

We are discussing how to "wipe out" a glut of the most precious energy resource known to man.....SO WE CAN RAISE PRICES!

We use 18-19 million barrels a day. We produce 9-11 million barrels a day. Do the math people. We are never going to be energy independent. The idea of exporting oil is stupid. If prices go much higher, the "economy" will crater.

Cheering higher oil prices......who would have thunk it?

In reply to by Fireman

Tugg McFancy Fri, 01/19/2018 - 08:08 Permalink

ZH has done a pretty good job of ignoring demand for the last 12 months. Thanks for your "help", but thankfully I didn't miss the rally. Of course frack hits, debt that hasn't gone anywhere with rising rates and rising costs don't seem to figure into any of these IEA projections.

hardcleareye Tugg McFancy Fri, 01/19/2018 - 10:48 Permalink

Are you referring to energy demand by the USA?  Because per the data complied by the EIA a rise in demand for energy is does NOT exist....  Primary Energy consumption of the USA by year in Trillion BTU

2017   65,080

2016   65,219

2015   66,031

2014   65,924

2013   64,620

Historically there has been a direct correlation to growth in GDP and Primary Energy Consumed... 

What recovery????  It is a made up paper tiger and is going to go down in flames.

In reply to by Tugg McFancy

Neochrome Fri, 01/19/2018 - 09:48 Permalink

Did anyone make any money from US shale yet?

https://www.forbes.com/sites/michaellynch/2015/07/17/shale-gas-making-m…

“The average shale gas company lost 2 dollars for every dollar they spent on producing the gas in Q1 2015. Spending other people’s money makes lots of things possible but the SEC filings tell the truth.” -- Art Berman, July 12, 2015.

https://srsroccoreport.com/the-mighty-u-s-shale-oil-industry-to-lose-an…

Well, it looks like the U.S. shale oil industry is going to chalk up another lousy year of financial losses in 2017.  This shouldn’t be a surprise as the U.S. shale oil industry hasn’t made any real money since 2008. 

So, the biggest 60 U.S. energy firms burned an average $9 billion in cash each quarter for the past five years… even at $100 a barrel oil.  At some point, investors and the market will need to wake up and realize that Shale Energy was nice while it lasted, but it was just another PONZI SCHEME.

https://www.zerohedge.com/news/2017-08-26/why-shale-oil-miracle-becomin…

The bottom line is this: The US shale industry resembles a fraudulent Ponzi scheme much more so than it does any kind of "miracle".

How do I know that?  Because, collectively, US shale companies have lost cash in every year of their existence.  The burned through cash when oil was $100 -- and again when it was $90, $80, $70, $60, $50, $40, and $30 a barrel.  They burned through cash in 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016.

Well, before another shale 'miracle' comes roaring out of the gate we’d need two things: enough new places to drill and more massive injections of capital.  Both are suspect at this point.

One analyst doing a superior job looking at the details is Rune Livkern of Fractional Flow, who made this excellent chart estimating that in the Bakken play, one of the best-performing  shale basin darlings of the entire “revolution,” the cumulative negative cash flow between 2009 and 2016 (a full 7 years of history) totaled some -$32 billion in losses:

"Our break-even oil price is $20 a barrel," Frank Hopkins, Pioneer’s senior vice-president, told an industry conference in London this week. "Even in a $40 world, in a $50 world, we are making good returns.

(Source – Bloomberg)

A company breaking even at $20 should be rolling in cash with oil at $45.  But they aren’t.