The proposed increase in supply of oil by the US & the possible cut by OPEC will be two opposing forces working together.The Sale of SPR by the US and with the current existing reserve of Oil with OPEC and lowering demand for oil because of Shale, prices of oil would remain under pressure. The world is flooded with excess oil and even curbing supply will not help prices as demand is affected by higher production of renewable energy, shift to electric vehicles and nations such as US, China and India not looking to build strategic reserves on oil oversupply.
The Trump Administration has proposed to sell off half of the oil which is stored as a part of the emergency reserve called as the Strategic Petroleum Reserve (SPR) in a bid to generate revenue for the US Government and help contain fiscal deficit. This move comes on the back of the rising shale oil production in the US economy and highlights the fact that the need for import of crude oil has reduced drastically giving way to completely being self reliant on future needs for oil.
The White House budget, delivered to Congress on 23rd May 2017, proposes to start selling SPR oil in fiscal 2018, which begins on 1st October. Under the proposal, the sales would generate USD 500 million in the first year and gradually rise over the following years.
The SPR is an emergency fuel storage of petroleum maintained underground in Louisiana and Texas by the United States Department of Energy. It is the largest emergency supply in the world, with the capacity to hold up to 737 million barrels.
Brent Crude Oil continued to be volatile in the range of 50 to 55 USD/BBL in the month of May 2017 on rising US Shale Oil production along with the proposed decision of OPEC to reduce supply going forward. The OPEC meeting is scheduled to take place in Vienna on 25th May 2017. Brent Crude oil prices are expected to firm up due to the proposed decision of OPEC to cut production in the meeting to be held.
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 54 USD/BBL in the second last week of May 2017 from 49 USD/BBL in the first week of May 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 51 USD/BBL in the second last week of May 2017 from 45 USD/BBL in the first week of May 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.