The Organization of Petroleum Exporting Countries said the U.S. should see the biggest output gains among non-OPEC oil producers this year, but it sees the U.S. supply forecast, dependent on growth in shale oil production, as risky.
OPEC, in its monthly report, said the U.S. should increase production by 520,000 barrels per day. It said U.S. production should average 10.51 million barrels a day in 2013 and stand at 10.6 million barrels in the fourth quarter, due to gains in production in the Bakken, Eagle Ford and Permian areas and growth in natural gas liquids.
“However, there are remaining risks associated with the growth forecast on the back of weather, technical, environmental and price factors. The heavy decline rate associated with wells producing from shale plays in the first year is seen as a major factor that could impact growth. Furthermore, price levels could have an impact on operators and limit capex as the year progresses.”
OPEC’s report also said ethanol production reductions could affect the forecast, as could severe weather conditions in the Gulf of Mexico and elsewhere. Technical factors also could delay startups.
John Kilduff of Again Capital said OPEC’s concerns about risk to the forecast have merit. While the comments about weather affecting Gulf production are boiler plate, concerns about shale production are not. In that type of production, new technologies have allowed producers to drill horizontal wells, unlocking oil and gas that was previously out of reach.
“They’re right to point that out. … If there’s anything I’ve been wary about, it’s the longevity of those wells myself,” said Kilduff. “They’re also right about the concerns of pricing points capping growth as we move forward.”
“The Saudis are draining a swimming pool full of oil, and we’re squeezing a sponge,” he said.
OPEC raised the outlook for the amount of oil it will need to produce this year and said oil demand will rise by 840,000 barrels per day in 2013. Demand for OPEC crude is expected to decline by 300,000 barrels to 29.8 million barrels per day.
The monthly OPEC report was released the same day as a new report from Citigroup that shows rapid growth in North American energy production, led by the U.S. That report also says OPEC’s future is threatened by major shifts in the energy industry, with new supply from North America and Iraq. The report said in several years, the ceiling for Brent crude may be $90.
OPEC says Canada is expected to increase production by 18,000 barrels a day in 2013 to 3.92 million barrels. But Canadian growth is coming from oil sand and shale production. OPEC said the oil price will play a major role in Canada’s production.
According to the new report from Citigroup, the break-even prices for oil sands production is the $90 level.