Brent Crude hit a three-year high of $70 a barrel at the beginning of January, but there are questions about this rally’s resilience. Higher prices threaten to unleash a new wave of US shale output in response.
“The higher the prices go, the harder the shale producers pump,” Tamas Varga at London-based broker PVM, said, adding “An overdue correction could be under way”.
The price of oil has been rising since late June 2017, supported by cuts in supply led by the OPEC producing nations and allies operating outside of the cartel, such as Russia. This has been achieved by a curb in excess stockpiles.
Brent Crude, which is the international bench-mark, hit the highest level, since December 2014, raising concerns that the higher prices will attract increased shale production from the US, undermining efforts by the global producers to cut supplies, which may well trigger renewed pressure on prices.
Iran’s Oil Minister stated earlier in the month that some OPEC members were not keen on increased prices, especially going above $60 per barrel, while the US Department of Energy forecast records levels of production for 2018, with output rising up to 11m barrels a day by 2019, up almost 20% on 2017’s figures.
The UAE’s Energy Minister told an energy conference held early January, “I don’t think any fundamentals have changed for us to consider a change in the output deal or to panic.”
Demand has remained robust during the winter months, while strong economic growth and a weaker US dollar have helped to buoy prices. In the US commercial crude inventories fell to the lowest level since March 2015 at 419.5m barrels.