The U.S. shale genie to stay in the bottle for now: OPEC sources

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The U.S. shale output is likely to remain limited in 2021 despite rising prices; which would give the Organization of Petroleum Exporting Countries and its allies (OPEC+) plenty of room to manage the market, OPEC sources said quoted by Reuters.

Firstly, although the forecast for U.S. oil output is likely to remain limited in 2021, for 2022 it may rise, especially on the shale end. Officials from OPEC’s Economic Commission Board (ECB) and external presenters discussed the matter during a meeting on Thursday.

Secondly, while there was general agreement on limited U.S. supply growth this year; an industry source said for 2022 forecasts ranged from growth of 500,000 bpd to 1.3 million bpd. “The general sentiment regarding shale was it will come back as prices go up but not super-fast.” Said one of the sources quoted by Reuters.

Thirdly, Reuters highlights that U.S. shale output usually responds fast to oil price signals; during this week, the U.S. crude peaked at multi-year highs at nearly $73 a barrel; however, producers are still focusing on capital discipline and returns for investors, rather than accelerating and increasing output.

Moreover, during the meeting, two OPEC sources agreed on a forecast of U.S. output to rise by a low rate of 200,000 barrels per day this year. A third source said this level of growth was the consensus for this year among most presentations.

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U.S. shale output may drop during 2021

Consequently, the lack of shale rebound by the U.S. would give OPEC+ more space to manage the market; specially as the organization is setting floor for July 1; when it will decide upon the production curbs imposed due to the pandemic.

In addition, one of the sources at the meeting said. “It looks like the shale oil genie is going to stay in the bottle for now. OPEC and Saudi Arabia have a lot of power at this time.”

On the other hand, according to Reuters, at Thursday’s technical meeting, OPEC+ considered forecasts from a range of organizations; including the International Energy Agency, Argus Media; also the U.S. Energy Information Administration, Wood MacKenzie; IHS, Energy Intelligence and Energy Aspects.

Finally, the latest OPEC forecast is for U.S. crude production in 2021 to decline by 120,000 bpd to a total of 11.2 million bpd; as for shale, the forecast is for it to drop by 140,000 bpd to 7.15 million bpd.

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