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Will OPEC Cuts Trigger New Wave Of US Shale Oil?



Excess inventories, weakening demand growth and oil prices around $ 15 per. Barrel lower than this time last year, OPEC and its allies left a small choice but to roll over their production cuts by 2020.

Although no one at OPEC officially talks about the goal of higher oil prices, the ultimate goal of the cartel and its de facto leader Saudi is -Arab a higher oil price and hence higher revenue for the petroleum states whose economies are dependent on oil exports.

By aiming for higher oil prices, but OPEC unintentionally helps rival non-OPEC production, especially US shale.

US Oil production has hit record in recent months, but the pace of US production growth has begun to slow significantly this year due to a 40% rise in oil prices in the fourth quarter of 201

8.

If OPEC's average can And, if a solution to the US-China trade battle improves oil demand prospects, the vicious cycle of higher oil prices leading to a growing US supply will lead to high stock levels leading to depressed oil prices again.

This is due to Saudi Arabia's budget budget estimated at $ 80-85 per dollar. Barrel Brent and the Kingdom seem to be fighting for higher oil prices instead of market share.

At $ 80 Went Crude burns usually at a discount to Brent, all US production areas, slate or non-slate, would easily be profitable under the Dallas Fed Energy Survey for Q1 2019.

But after oil prices fell in Q4 2018, US production growth has slowed down slowly this year, despite the fact that it reached full-time £ 12,162 million in April 2019, as reported by EIA. Related: These 12 US states that have just hiked petrol taxes

According to EIA data prepared by Reuters analyst John Kemp, US crude oil and condensate production growth was 1.52 million bpd years for year for three months between February and April 2019 compared to an annual growth rate of nearly 2 million bpd-1.97 million bpd between August and October 2018.

Given that there is a period of 9-12 months between an oil price decline and actual production, production in the US could continue to slow down at the end of this year due to the fall in prices in Q4 2018. Kemp argues.

Several signs already point to slowing down drilling activity and production growth.

The US oil giant is currently down by 65 rigs from this time last year, according to Baker Hughes data. Despite the decline in yields year on year, production in the United States is almost 1.2 million barrels a year, which corresponds to OPEC's production reduction agreement.

According to the Q2's Dallas Fed Energy Survey of Oil and Gas Conductors, activity in the oil and gas sector was flat in the second quarter of 2019 after three years of growth. While oil and gas production rose in the 11th consecutive quarter, the oil production index showed slightly slower growth. The index of corporate outlook pointed to more pessimism about future conditions, coinciding with an increase in uncertainty, where the uncertainty index rose 31 points to 50-the highest level since the index was introduced in 2017, the survey showed.

In spite of moderate growth, US production will continue to rise and offset largely OPEC and Allies efforts to reduce global inventory. Related: Is this the beginning of the end for OPEC?

OPEC and its Russian-led non-OPEC partners in the production cut-off agreement are aiming for higher prices right now, although this means ceding market share and OPEC's share of global oil production falls next year to below 30 percent for first time since 1991, according to Bloomberg News estimates.

"I have no doubt that US slate will peak, plateau and then fall like any other ridge in history," said Saudi Arabian energy minister Khalid al-Falih in Vienna this week, as reported by Bloomberg. [19659002] But Saudi Arabia and OPEC may have to wait at least half a decade to a decade for US slate to germinate, as many estimates put shale stops around 2025 or later.

Every time Saudi Arabia and OPEC see their coveted oil price on $ 70-80 on the horizon, US slate will react with higher drilling activity and production.

Derek Brower, director of the research firm RS Energy Group, summed it up to the Financial Times this week:

"Opec will continue to push slate. "

By Tsvetana Paraskova for Oilprice.com

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