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The collapse in oil prices at the end of last year, as well as shareholder pressure, led to a slowdown in the American shale industry.
EIA released new monthly data on March 29, revealing a decline in production of about 90,000 barrels per day between December and January, indicating that shale drillers have experienced a period of slackening. after the fall in oil prices in the fourth quarter. The 90,000 bpd drop came after a rather modest increase of 35,000 bpd the previous month, which was the smallest increase in months.
But the American shale industry faces more headwinds than a temporary drop in oil prices. Shareholders are slow to deal with unprofitable drilling and demand returns, tightening the screws of less competitive companies and imposing generalized spending cuts. Of even greater concern to the industry is the growing recognition of the problem of "parent-child" wells – the unexpected poor performance of subsequent wells drilled near the initial "parent" well.
These obstacles begin to accumulate. Schlumberger and Halliburton, the two largest oil services companies, predicted that shale drillers would be forced to cut spending by more than 10 percent this year.
The slowdown could put upward pressure on the oil market, already down in Venezuela and Iran, and coordinated reductions in OPEC +. While US inventories rose unexpectedly last week, much of this increase may be behind the storm in the Houston Ship Channel following a major fire in a petrochemical facility.
Indeed, some analysts are seeing a significant drop in inventories in the coming weeks. "The most visible stocks in the world … will be victims of an important mix of supply disruptions in Venezuela, a spill of chemicals on the Houston Ship Channel and an increase in the number of refineries Barclays wrote in a note on March 29. The investment bank sees WTI averaging $ 65 a barrel this year. Related: Trump Battles for Key Oil and Gas Projects
The sharp decline of eight oil rigs last week, which marks a sixth consecutive decline, is another asset.
However, there is no guarantee that the slowdown will take a long time. The data company Kayrros said the decline in production would be "short-lived" and that there were already signs of renewed activity in the sector in recent months. "This decline, which follows past seasonal behavior, follows a drop in the number of completed wells measured by Kayrros in December via a combination of satellite imagery and advanced treatment," writes Kayrros in a report. "But the same proprietary technologies show that finishes rebounded well in January and February, suggesting a rebound in production." In fact, Kayrros says Permian production could once again exceed expectations this year.
Nevertheless, the pause in the shale zone generates higher prices. "We expect Brent to reach 70 to 80 dollars a barrel," said Giovanni Staunovo, of UBS, according to the Wall Street Journal. Related: Reuters: OPEC oil production drops to the lowest since 2015
At the same time, other signs of tightening abound. A Reuters survey shows that OPEC production fell to its lowest level in four years in March, while Saudi Arabia was below its needs and Venezuela had larger supply losses. OPEC produced 30.40 mb / d last month, down 280,000 b / d from the previous month. In particular, Venezuela recorded the disposal of 150,000 barrels a day, a volume that is difficult to recover.
Crucially, fears of an economic slowdown have eased somewhat. New data from China indicates the largest monthly increase in the Manufacturing Purchasing Managers Index since 2012. The data has eased concerns about China's impending slowdown. In addition, it is hoped that trade negotiations between the United States and China will lead to a breakthrough and the elimination of tariffs, which would erase one of the most serious risks for the oil market.
In early trading on Monday, WTI jumped more than $ 61 a barrel and Brent $ 69 a barrel. "Win around. 27%, Brent had its best start to the year since 2005 in the first quarter, "writes Commerzbank in a note. Although the bank warned that the rise in prices was somewhat limited, the Brent futures curve took on a bullish tone. "OPEC production cuts reduce supply in the global market. As a result, the curve ahead of Brent is in decline. "
By Nick Cunningham from Oilprice.com
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