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BUNKER INDEX :: Price Index, News and Directory Information for the Marine Fuel Industry
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All eyes (back) on US shale oil producers

05 Dec 2017 09:55 GMT

By A/S Global Risk Management.



As OPEC meeting took place last Thursday, a lot of tensions and expectations that had been built in the market, were released in what appeared as quite a non-event.

This leaves a lot of room for looking at the U.S. once again. The U.S. has been highly active during the last 3-4 weeks in terms of production and exports. As OPEC have chosen to extend the current oil production cut (1.8 mio. barrels' production off the market), leading to increase in oil prices, it is natural to expect the U.S. to ramp up production and go for market share.

But it seems that some of the large shale drilling companies are shifting strategy a bit. The general strategy has for a long time been to increase production and expand drilling sites, which has cost a lot of money and generated negative cash flows. Now it seems like strategy is changing to a more investor-focused strategy. More specifically it means that investments will be more controlled and stringent in order not to flood the market, sending prices plummeting as in 2015-2016. Likely it does not mean that the producers will cut spending or output as global demand still seems very strong with increasing export possibilities for the U.S.

The danger for the large producers is that with increasing prices, smaller producers with higher break-even prices are likely going to step into the market and increase production. As more producers step in, the costs of equipment, labour etc. will increase for everyone.

The momentum in the latest uptrend in the Brent price seems to have been wearing off during the first couple of days in December, which is why inventory stats could have a significant impact on the price this week. The American Petroleum Institute (API) will release the weekly oil stocks data later today.



A/S Global Risk Management is a provider of customised hedging solutions for the management of price risk on fuel expenses. The company has offices in Denmark and Singapore. For further details about its risk management products and services, please call +45 88 38 00 00 or email hedging@global-riskmanagement.com.


Image: Michael Poulson, Oil Risk Manager at A/S Global Risk Management. Image credit: A/S Global Risk Management




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