WTI, Brent Prices Down As U.S. Shale Industry Again Defies Expectations
Ellen Wald, PhD | Nov 01, 2018 20:30
The US shale industry has once again defied expectations. New data from the EIA show that US oil production in August 2018 was higher than initial estimates showed. The EIA-914 Monthly Crude Oil and Natural Gas Production growth would slow to only 93,000 barrels per day. Some of the strongest growth occurred in Texas, Alaska, New Mexico, Colorado, the Gulf of Mexico and North Dakota. Other areas of growth include Wyoming, Montana and Oklahoma.
Since April 2018, the message has been that US oil production growth would be seriously constrained by a lack of pipelines. One key pipeline is expected to open in November 2018 but most of the increased capacity in critical areas like the Permian will not come online until mid to late 2019. However, the data from the EIA indicate that oil production in the United States is continuing to grow despite a lack of pipelines.
Market watchers should be aware that the EIA might update its forecasts for November and December production based on this data. In addition, earlier oil price forecasts that were based on less robust oil production in the United States may prove to be too high.
The United States is not the only North American oil producer with a healthier than expected outlook. Canada’s National Energy Board (NEB) recently released a report which forecasts that Canadian oil production will grow from 4.6 million barrels per day to 7 million barrels per day by 2040.
Several Canadian producers have plans to expand projects in oil sands areas, but have not started these expansions yet. According to reports, they are waiting for additional oil and gas pipeline capacity that is in progress but not yet online. As such, the report says that traders should expect the Western Canadian Select (WCS) crude grade to continue to trade at significant discounts from WTI.
The NEB believes that WCS will trade at an average of $26.30 per barrel less than WTI until 2020. After that, the discount should shrink to about $14 per barrel.
Both WTI and Brent suffered losses on Wednesday. demand forecasts.
Some analysts are warned on Wednesday , even the Trump administration does not expect Iran’s customers to reduce their imports of Iranian oil to zero immediately. The amount of Iranian oil that comes off the market in November could be less than market watchers expected, and that could keep oil prices down at least until the OPEC meeting in December.
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