FX.co ★ OPEC to revive shale drilling in the US

According to the EIA, OPEC's plans should reduce global oil supply, but at the same time revive shale drillings in the United States.

Last march 4, OPEC and its allies had a meeting, during which the members decided to maintain the current volume of oil production, at least until April. That said, Saudi Arabia will also continue its additional 1 million bpd production cut.

These cuts, along with the supply disruptions in the US, led to a significant decrease in global oil reserves last February. The EIA estimates the decline to be around 3.7 million bpd, the largest monthly decrease since December 2002.

And now, Brent futures briefly surpassed $ 70 a barrel, following the announcement of the OPEC's decision, as well as the attack on Saudi Arabian oil facilities.

To add to that, due to the extension of production cuts, many assume that even if demand for oil continues to grow, supply will remain limited.

The EIA hopes that this will support oil prices, at least until the end of April, since OPEC may start increasing production by May.

But this forecast of the EIA has several key uncertainties:

First is that the rate of recovery in actual demand, based on COVID-19 vaccination rates and the extent to which travel and employment conditions are returning to pre-COVID levels, remains an important demand-side uncertainty.

Next, the extent to which these production cuts will continue remains a source of supply-side uncertainty, especially since a rise in oil prices will convince OPEC members to either agree to a production increase at later meetings, or to loosen compliance with the existing agreement.

So, at the end of 2021 and 2022, the EIA predicts the lowest prices, although this forecast also depends on US shale production.

The EIA expects oil production in the US to be around 11.4 million bpd from July, and in 2022, grow to 12.0 million barrels per day.

In short, if oil prices remain at current levels, increased production from US reservoirs will lead to a steady rise in global supply by early 2022. However, producers may not be using capital in the same way as they did in the past, which adds more uncertainty to the EIA's forecasts.

At the same time, high prices are prompting OPEC to loosen its goal if countries decide to increase production. Thus, the more oil prices jump in the future, the more pressure they will put on price reductions.