Daily Management Review

Global Crude To Fall Below $50 A Barrel Due To U.S. Shale Output Increase: JP Morgan Analysis


03/29/2018




A research at investment bank J. P. Morgan has claimed that global crude prices would fall back to near $50 a barrel because of increase in U.S. shale production in addition to increase in efficiencies in some of the largest oil producing companies and countries.
 
By the end of next year, $50 a barrel would be the price where OPEC nations and major energy companies would be able to more or less attain a “breakeven” price – where they just manage to recover their costs of production, according to Christian Malek, the head of EMEA oil and gas equity research at J.P. Morgan. The present breakeven price for as barrel of crude currently is at about the mid-$60 range which is also applicable for the countries like Saudi Arabia and Kuwait.
 
However, the research anticipates that a "breakeven duel" between the large oil companies and the 14-member OPEC organization would soon "drive a vicious cycle for oil prices, with medium-term pricing likely to gravitate to the low-$50s."
 
"Everything is gravitating towards $50 a barrel," he said.
 
The continuous increase in production of shale oil in the U.S. would be the most disruptive effect on the breakeven price pressures even though it would be influenced by enhanced efficiency standards among big oil companies, he explained.

There has bene an appreciation of 35 per cent in the price of crude since the middle of last year, where even a price above $70 a barrel was reached by Brent crude for a brief period.
 
A curtailment in the production of crude by the OPEC and Russia has been the biggest contributor to the appreciation in prices who began reduction in output in January last year. The aim of the production cut is to clear out the inventory glut in the global oil market and to shore up prices. The cuts are to continue throughout 2018.
 
Following the reduction of oil prices from over $100 in 2014 to below $30 in 2016. OPEC convinced Russia and some other non-OPEC oil producers to work with the oil cartel – led by OPEC member Saudi Arabia. There has however, been an increase in crude price to nearly $70 a barrel. However, the gains have been impacted by increasing U.S. shale production.
 
"Rising U.S. shale output, excessive hedge fund long positions on the futures market, and the uncertain but overdue transitioning of the petro-nations' supply deal all contribute to a fragility of the oil market, which should not be underestimated," Norbert Rucker, head of macro and commodity research at Julius Baer, said in a research note Thursday.
 
"I think to see Russia continue with OPEC over the medium term is quite bullish. Our base case would be that you'd find that they sort of agree on an independent framework, work together but ultimately just around a range in production," J.P. Morgan's Malek said.
 
"History says that OPEC complying with individual quotas has never happened, so I think this framework would arguably be a paper framework," he added.
 
(Source:www.cnbc.com)






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