On 30th November 2017, the Organization of Petroleum Exporting Countries (OPEC) and its non-OPEC friends decided to extend the output cuts till the end of 2018. OPEC and its allies started withholding supplies since January 2017 and currently plan to continue doing so throughout 2018. Brent Crude oil price has rallied from USD 44 per barrel in the month of June 2017 to USD 65 per barrel in the month of December 2017. The cut in production led to the decrease in supply of oil from OPEC and other supporting countries which has helped it rally in the last six months.
The rise in price of crude oil in the international market would allow US shale oil companies to increase production and thereby contribute to the rise in supply. The rising U.S. output threatens to undermine efforts led by the OPEC and a group of non-OPEC producers, most importantly Russia, to support prices by withholding supplies.
The U.S. oil production surged in September 2017, jumping by a massive 290,000 bpd from a month earlier, hitting 9.48 mb/d. The U.S. shale industry shifted into expansion after prices jumped above USD 50 per barrel.
The upside for Brent Crude oil price is therefore expected to remain limited as the decision to cut production by OPEC would make way for higher supply of US shale oil in the international market and decrease prices accordingly.
The term oil shale generally refers to any sedimentary rock that contains solid bituminous materials (called kerogen) that are released as petroleum-like liquids when the rock is heated in the chemical process of pyrolysis. Oil shale was formed millions of years ago by deposition of silt and organic debris on lake beds and sea bottoms. Over long periods of time, heat and pressure transformed the materials into oil shale in a process similar to the process that forms oil but the heat and pressure were not as great. Oil shale generally contains enough oil that it will burn without any additional processing.
Oil shale can be mined and processed to generate oil similar to oil pumped from conventional oil wells but extracting oil from oil shale is more complex than conventional oil recovery and currently is more expensive. The oil substances in oil shale are solid and cannot be pumped directly out of the ground. The oil shale must first be mined and then heated to a high temperature (a process called retorting); the resultant liquid must then be separated and collected.
Shale Oil Resources
Oil shale is found in many places worldwide but the largest deposits in the world are found in the United States in the Green River Formation, which covers portions of Colorado, Utah, and Wyoming. Estimates of the oil resource in place within the Green River Formation range from 1.2 to 1.8 trillion barrels. Not all resources in place are recoverable but even a moderate estimate of 800 billion barrels of recoverable oil from oil shale in the Green River Formation is three times greater than the proven oil reserves of Saudi Arabia.
US Oil Production
U.S. oil production has grown rapidly in recent years with the U.S. Energy Information Administration (EIA) data reflecting combined production rise from 5.7 million barrels per day (bbl/d) in 2011 to 7.4 million bbl/d in 2013. EIA’s Short-Term Energy Outlook (STEO) projects continuing rapid production growth in 2014 and 2015, with forecast production in 2015 reaching 9.2 million bbl/d. Beyond 2015, EIA’s Annual Energy Outlook (AEO) projects further production growth, although its pace and duration remain uncertain. Domestic production plateaus near 9.6 million bbl/d between 2017 and 2020, close to its historical high of 9.6 million bbl/d in 1970, in the AEO2014 Reference case. In the AEO2014 High Oil and Gas Resource case, growth continues through the 2020s and into the 2030s, with production reaching 13.3 million barrels per day in 2036.
The US Oil production is expected to increase in the near future at a rapid pace with the Shale Oil revolution. The increase in the production of oil from the US is expected to keep the crude oil prices in check in the long term.
Brent crude oil increased to 65 USD/BBL in the month of December 2017 from 44 USD/BBL in the month of June 2017. Brent crude oil averaged 41.78 USD/BBL from 1970 until 2016, reaching an all-time high of 145.61 USD/BBL in July of 2008 and a record low of 8.75 USD/BBL in July of 1986.
Nymex Crude oil increased to 58 USD/BBL in the month of December 2017 from 42 USD/BBL in the month of June 2017. Nymex Crude oil averaged 40.08 USD/BBL from 1946 until 2016, reaching an all-time high of 145.31 USD/BBL in July of 2008 and a record low of 1.17 USD/BBL in February of 1946.
The prices of Crude Oil reached an all-time high in the year 2008 on account of speculation that demand for Oil from emerging countries would outpace the supply in the immediate future. Crude Oil price reached a low of 28 USD/BBL after the global economic slowdown followed by rising supply in the month of January 2016. Oil prices tend to become volatile if the supply gets affected due to geopolitical tensions in the oil producing regions of the World. The price for crude has once again reached low of 2008 and continues to trend down due to decreased demand and rising supply.