Tuesday, 21 Jan 2014 |
By: Sri Jegarajah | Senior Correspondent, CNBC Asia Pacific
Rising U.S. oil production - led by the country's shale revolution - will help neutralize supply disruptions from Libya and Iraq, making global markets less vulnerable to price shocks.
Abundant U.S. supply, together with the possible return of Iranian crude exports, will guide prices lower, possibly forcing the Organization of Petroleum Exporting Countries (OPEC) to cut production this year if benchmarks fall well-below $100 a barrel, traders and analysts say.
The U.S. - the world's largest energy consumer - is set to overtake Saudi Arabia and Russia as world's largest oil producer, raising production by a projected 1 million barrels a day next year, the third annual increase in a row, Deutsche Bank said in a Jan. 14 report.
"Rising U.S. oil supply growth alone is sufficient to effectively take the edge out of geopolitical risk for the oil market," said Soozhana Choi, head of energy research at Deutsche Bank. "While the U.S. shale oil revolution has more often than not been framed within a North American context, the pressure is coming to bear on the global oil balance."
Global oil balances are looking increasingly "oversupplied" because of "rampant" U.S. oil supply, Deutsche's Choi said, while the expected normalization of Iranian oil exports "poses meaningful downward pressure on oil prices."
Technological breakthroughs in the upstream oil and gas industry have helped accelerate the extraction of hydrocarbons trapped in shale rock formations though opponents claim this is causing major environmental degradation.
BP outlook: Oil demand to decline before 2035
Christof Ruehl, BP's chief economist, comments on the group's 2035 energy outlook and says it expects oil demand in 2035 to be at the level seen in 1985.
Eugen Weinberg, global head of commodities research atCommerzbank, said Brent crude's "very tight range" between $100 and $120 a barrel over the past three years reflects how supply-led price spikes have been contained by a constructive supply environment.
"The basic factor keeping oil prices from rising over the coming months, maybe years, is probably what we've been witnessing in the shale boom in the U.S.," Weinberg told CNBC's 'Squawk Box' on Friday.
Annual U.S. production capacity additions of 1 million barrels a day will likely continue over the coming years, Weinberg said, "definitely taking the heat from the market."
'Crescent of Chaos'
But political risk strategists warn global risks to supply will continue to unnerve markets -- regardless of the supply boom underway in the US.
"Events in Iraq and Libya underline the fact that non-negligible threats to oil output are to be found more widely in the region," said Alastair Newton, Nomura's Senior Political Analyst said in a Jan.15 report.
Deepening tensions between Sunni and Shia Muslims in an area of the Middle East Newton calls the "crescent of chaos" – focused primarily around Syria, Iraq and Iran -- means oil price risks from this first quarter "and beyond may be skewed to the upside."
Iranian oil won't reach market in 2014: Pro
Richard Mallison, geopolitical analyst at Energy Aspects, explains that Iranian oil exports may not increase in 2014 while talks for a deal with Western countries continue.
For Iraq, deteriorating security concerns and increasingly "sclerotic" governance threatens to slow investment in new output, putting in doubt even the International Energy Administration's "conservative" production forecast of 6 million barrels a day by 2020, Newton said.
Still, oil industry executives say recent supply shocks haven't had the same impact on the market as in the past because of the offset from U.S. supplies which is putting America on the path towards energy independence.
'Self-Sufficient'
Rex Tillerson, CEO of the world's largest publicly traded oil companyExxon Mobil, said the U.S. is on track to achieve energy self-sufficiency by 2020.
"I think it is realistic that the U.S. could be energy self-sufficient by the end of this decade," Tillerson told CNBC in a Jan. 9 interview. "We're already the world's largest natural gas producer (and) last year crude oil production surpassed levels not seen since the 1980s."
However, former U.S. policymakers and ex-generals warn the oil boom and reduced energy imports don't fully guarantee energy security.
Rising U.S. oil production - led by the country's shale revolution - will help neutralize supply disruptions from Libya and Iraq, making global markets less vulnerable to price shocks.
Abundant U.S. supply, together with the possible return of Iranian crude exports, will guide prices lower, possibly forcing the Organization of Petroleum Exporting Countries (OPEC) to cut production this year if benchmarks fall well-below $100 a barrel, traders and analysts say.
The U.S. - the world's largest energy consumer - is set to overtake Saudi Arabia and Russia as world's largest oil producer, raising production by a projected 1 million barrels a day next year, the third annual increase in a row, Deutsche Bank said in a Jan. 14 report.
"Rising U.S. oil supply growth alone is sufficient to effectively take the edge out of geopolitical risk for the oil market," said Soozhana Choi, head of energy research at Deutsche Bank. "While the U.S. shale oil revolution has more often than not been framed within a North American context, the pressure is coming to bear on the global oil balance."
Global oil balances are looking increasingly "oversupplied" because of "rampant" U.S. oil supply, Deutsche's Choi said, while the expected normalization of Iranian oil exports "poses meaningful downward pressure on oil prices."
Technological breakthroughs in the upstream oil and gas industry have helped accelerate the extraction of hydrocarbons trapped in shale rock formations though opponents claim this is causing major environmental degradation.
BP outlook: Oil demand to decline before 2035
Christof Ruehl, BP's chief economist, comments on the group's 2035 energy outlook and says it expects oil demand in 2035 to be at the level seen in 1985.
Eugen Weinberg, global head of commodities research atCommerzbank, said Brent crude's "very tight range" between $100 and $120 a barrel over the past three years reflects how supply-led price spikes have been contained by a constructive supply environment.
"The basic factor keeping oil prices from rising over the coming months, maybe years, is probably what we've been witnessing in the shale boom in the U.S.," Weinberg told CNBC's 'Squawk Box' on Friday.
Annual U.S. production capacity additions of 1 million barrels a day will likely continue over the coming years, Weinberg said, "definitely taking the heat from the market."
'Crescent of Chaos'
But political risk strategists warn global risks to supply will continue to unnerve markets -- regardless of the supply boom underway in the US.
"Events in Iraq and Libya underline the fact that non-negligible threats to oil output are to be found more widely in the region," said Alastair Newton, Nomura's Senior Political Analyst said in a Jan.15 report.
Deepening tensions between Sunni and Shia Muslims in an area of the Middle East Newton calls the "crescent of chaos" – focused primarily around Syria, Iraq and Iran -- means oil price risks from this first quarter "and beyond may be skewed to the upside."
Iranian oil won't reach market in 2014: Pro
Richard Mallison, geopolitical analyst at Energy Aspects, explains that Iranian oil exports may not increase in 2014 while talks for a deal with Western countries continue.
For Iraq, deteriorating security concerns and increasingly "sclerotic" governance threatens to slow investment in new output, putting in doubt even the International Energy Administration's "conservative" production forecast of 6 million barrels a day by 2020, Newton said.
Still, oil industry executives say recent supply shocks haven't had the same impact on the market as in the past because of the offset from U.S. supplies which is putting America on the path towards energy independence.
'Self-Sufficient'
Rex Tillerson, CEO of the world's largest publicly traded oil companyExxon Mobil, said the U.S. is on track to achieve energy self-sufficiency by 2020.
"I think it is realistic that the U.S. could be energy self-sufficient by the end of this decade," Tillerson told CNBC in a Jan. 9 interview. "We're already the world's largest natural gas producer (and) last year crude oil production surpassed levels not seen since the 1980s."
However, former U.S. policymakers and ex-generals warn the oil boom and reduced energy imports don't fully guarantee energy security.
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