Rising oil prices could sustain financial returns for USA shale drillers even as oil field service companies demand more money for rigs and crews, OPEC said Thursday.
The International Energy Agency said Friday that "explosive" increases in US oil output would push the country ahead of Saudi Arabia this year and put it in a position to challenge top producer Russian Federation.
That said, the recovery in oil prices over the past year has allowed the United States shale producers to reinstate their oil production, which had become non-profitable due to extremely low oil prices.
This month's OPEC report says it expects total USA crude supply to increase by 110,000 barrels a day in the year ahead.
"Solid refinery activity has been one component behind the ongoing streak of crude draws, which in turn have helped keep alive an oil rally that has lifted prices to their highest levels since December 2014", S&P Global Platts Oil Futures Editor Geoffrey Craig said in the emailed report.
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Even though crude oil futures retreated last week, oil prices are finding robust support from a tightening market, with strong fundamentals. Some did fold or put production on hold but recent highs mean that shale companies are going back online. In December 2016 was a meeting of oil producers outside the OPEC. The cartel expects the oil markets to rebalance by the second half of 2018, taking the oil prices to the $65-$70 per barrel range over the next few months, ceteris paribus (all other things being equal). As a result of new investments, the production in the U.S. could reach 11 million barrels per day during the year, surpassing Saudi and Russian yields, shows the official government forecasts.
The decline in Opec production and resultant price recovery is a boon for the shale oil producers.
The news agency on Thursday pointed out that OPEC publishes two sets of production figures, and the 216,000 bpd drop (about 29 percent) was issued Caracas; by contrast, a consensus figure from secondary sources pegs the drop at 82,000 bpd, or 14 percent.
Early Thursday morning, West Texas Intermediate crude for February delivery traded at $63.45 a barrel, down about 0.8% compared with Wednesday's closing price of $63.95. Oil has now reached $70 a barrel for the first time since early 2015, and is still rising. The production cuts by OPEC and 10 other allied producers, which are scheduled to last throughout 2018, are aimed at clearing a supply overhang and propping up prices.
It is important to note that overall production from OPEC including the exempted members like Nigeria, and Libya rose by 42,400 barrels per day In December compared to November and some members are yet to comply with the agreed level of output.