FORT WORTH, Texas – U.S. shale is no longer the world's swing producer, so it will be up to OPEC to keep oil prices from going too high later this year, said Amrita Sen, Energy Aspects’ co-founder and director of research, at the SUPER DUG conference on May 24.
She predicted a mild recession in the U.S. and Europe, but said China’s emergence from its COVID-19 shutdown should keep demand elevated and push oil prices up this year.
Sen’s London-based energy research company predicted the Gulf of Mexico, Permian Basin and shale plays will increase production by 600,000 bbl/d this year, but that growth will taper next year. Sen said her expectation that production will increase by 300,000 bbl/d was shared throughout the industry when she talked to large- and mid-cap companies.
“We’ve had no pushback on the 300,000 for next year’s numbers—if anything it might even end up being flat,” she said.
Anticipation over the Fed’s next move on interest rates and a tight labor market that is not cooling is creating a dynamic never seen before, she said. That’s causing uncertainties among people trying to invest and trade in energy.
Despite these challenges and the rising cost of capital, the industry should focus on where it does have influence and where much work needs to be done: reversing nine years of capex neglect and replenishing commercial stores—particularly after the draining of the Strategic Petroleum Reserve (SPR), which remains at its lowest levels since September 1983, according to the U.S. Energy Information Administration (EIA).
As of May 19, there were 455.2 MMbbl commercial reserves, excluding the SPR, according to EIA data.
“We should be building stocks…underlying supply remains constrained, and demand, while not being massive, has continued to grow,” Sen said, explaining that much of the demand was from Asia—predominantly China. “If you don’t have inventories and you have a supply-demand gap, you will have to rely on OPEC to bring back those barrels, especially because shale is no longer the kind of swing [producer] it used to be.”
Shaky faith in fossil fuels’ future should be offset by the fact that fossil fuels made up 82% of global energy resources in the 1980s and still make up 82% today, Sen said.
China has been the biggest driver of today’s oil demand growth, consuming 1.5 MMbbl/d in the first four months of the year, she said.
In a presentation packed with data and predictions, Sen threw in one unorthodox interpretation of global events.
“Dare I say it?” she said. “I firmly believe oil prices today would’ve been much higher had it not been for the Russian invasion of Ukraine.”
Before the invasion, Brent crude was up to $95 and Cushing storage was at record lows, with “bare bone stock levels around the world.” A massive drop off of Russian oil was expected. But the Russians have been able to keep apace so far, and SPR oil was quickly tapped.
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