Shale production seen damping crude prices into 2019

Analysts say oil prices which have been mostly flat for the last 15 months will continue a bearish run until 2019, when it is expected to rise to $60 a barrel.

US shale producers have cut more than $12billion from their 2017 spending budgets even as they manage to ramp up production. This indicates the industry’s ability to raise production, keep costs down, at the same time improving the process of drilling and fracking as well as to increase its clout in global oil markets.

A Reuters’ review of the second-quarter regulatory filings of shale producers show that they are expected to pump at least 160,000 more barrels per day in 2017 more than previously announced.

Lee Teillman, CEO of Marathon Oil Corp, a shale producer said in an interview last week that they could now do more with less. Marathon Oil Corp is cutting its 2017 spending plan by between $200 million and $300 million after posting a quarterly loss. It has already boosted its production forecast by 7 percent this year.

Some shale producers forecast they would raise production for oil and gas by about 25 percent in 2017 with far reaching consequences for oil prices. It will also have effect on jobs, government earnings and the economy of many countries.

On jobs, the pressure is already on workers with employing falling, In the US, employment in oilfields fell slightly last month from June, continuing a year-long trend according to a US Bureau of Labor Statistics. Employment fell by 700 month to month, and is down by about 1,600 over the year.

The figures are even worse globally. The US EIA in a recent report said over 142,000 jobs, representing 26 percent of employment was lost since 2014. The figures for Africa’s largest crude producer is over 150,000 jobs lost in the oil sector since the downturn precipitated by a glut in global supply.

According to a poll of 15 investment banks conducted by the Axios, Brent crude — the internationally traded benchmark — will average $53 a barrel this year, and rise to $55 in 2018; for both years, that is $2 lower than they said a month ago. In 2019, Brent will average $59.60, they said.

Axios further said that the main culprit for all of this is US shale drillers, who are finding their oil cheaper and cheaper to produce, cutting costs and conducting only subdued rehiring of workers laid off in the hundreds of thousands over since 2015 so that every time oil prices go up, they produce more, which then pushes prices back down.

The implication for countries and oil companies are immense. Motorists can expect a long additional period of low gasoline and diesel prices but companies will struggle to maintain a healthy balance sheet.

In the same way, there will be pressure countries that rely on crude sales to fund their budgets especially in Africa where most of the economies are not diversified. Two years of low oil prices have ravaged the balance sheets of many companies who are only seeing slight increases in revenue.

ISAAC ANYAOGU