Brent crude oil prices hit their highest level since November 2014 on 3rd October 2018 ahead of U.S. sanctions against Iran that are expected to be implemented in the month of November 2018. The US has been putting pressure on governments and companies worldwide to cut their imports to zero as sanctions are going to be put in the next month. Oil price has been supported by the concern that the Iranian export loss due to unused production capacity would lead to supply shocks. Concern that the US-Chinese trade war could slow down economic growth and hit oil demand also weighed marginally on the price of crude oil to some extent.
Saudi Arabia has indicated that it plans to raise production in November from October output of 10.7 million barrels per day (bpd), which would boost supply in the international market.
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. Surging oil output from shale formations boosted total U.S. crude production to a record high of nearly 10.7 million barrels a day in June 2018, the latest month for which data is available.
Shale Oil
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
Surging oil output from shale formations boosted total U.S. crude production to a record high of nearly 10.7 million barrels a day in June 2018, the latest month for which data is available.
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.
Price Trends
Brent crude oil increased to 86 USD/BBL in the month of October 2018 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 76 USD/BBL in the month of October 2018 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.
