Schork Group CEO Stephen Schork provides insight into rising oil prices.
OPEC producers and their allies, led by Saudi Arabia and Russia, may underestimate the resilience of American shale, according to one analyst.
The so-called OPEC + group bets that US producers will be too late to have new boreholes drilled and pumped, so that OPEC and its allies can already increase their production.
“The higher prices go, and the longer they stay there, the more likely this calculation will change,” said John Normand, head of cross-asset strategy at JPMorgan Chase & Co.
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West Texas Intermediate Crude Oil, the U.S. standard, hit $ 67 a barrel for the first time since November 2018 last week as the discovery of several COVID-19 vaccines enabled the world economy to reopen faster than before is expected.
| Ticker | Safety | Last | Alter | Alter% |
|---|---|---|---|---|
| USO | UNITED STATES OIL FUND LP | 40.47 | -3.35 | -7.64% |
The current price level points in sharp contrast to the – $ 36.73 reached in April while Saudi Arabia and Russia fought over prices and barriers aimed at slowing the spread of COVID-19 hurt the world economy brought to a halt.
A ceasefire in the price war between Saudi Arabia and Russia led to a historic agreement that reduced world production by 9.7 million barrels per day, or about 10%. The cuts fell to 7.2 million bpd in January, and Saudi Arabia agrees to a voluntary cut of 1 million bpd.
At these prices, there is a ‘large group of operators who are in a good position to increase their activities in the second half of this year’ and increase volumes in 2022, Normand wrote.
But WTI trading above the $ 60 a barrel level is no sure thing. The Energy Information Administration increased its forecast for 2021 WTI prices by 14% to $ 57.24 per barrel. The price forecast for 2022 was increased by 6% to $ 54.75.
WTI plunged 7.12% to $ 60 a barrel on Thursday as higher yields on bonds and some brackets in the deployment of the vaccine outweighed prices.
But OPEC has a few factors working in its favor.
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U.S. oil producers “may be a little shy about pouring more capital into the market until it really looks like a $ 60 recovery is here to stay,” said Stewart Glickman, an energy analyst at CFRA Research in New York , said.
In addition, strong declining rates in oil slicks such as the Perm basin in western Texas and eastern New Mexico make it difficult for companies to increase production, at least in the first year, without spending a decent amount of money, ‘he said. added. “It works in OPEC’s favor.”