Advances in U.S. shale oil production technologies are contributing the to supply surplus and weighing on any oil price gains. It has become much cheaper for the upstart U.S. shale producers to extract oil out of the ground, but the growth rate of U.S. oil product has also recently slowed.
“Everyone’s confidence has been hinged on the idea that U.S. shale would give us enough supplies, when in reality (as our work has shown) it’s not going to happen. There is near perfect consensus out in the market place today that U.S. shale will be the harbinger of supplies. Productivity gains and lower break-even have prompted people to call U.S. shale as the new “swing producer,’” notes Seeking Alpha.
Citigroup also projects a greater likelihood of persistent shortage of oil than a big jump in supply over the coming quarters. Ed Morse, global head of commodities at the bank, said that a handful of Organization of Petroleum Exporting Countries might already be pumping at maximum capacity already, and due to weak investment in exploration and development, there is a greater risk of a market squeeze once demand picks up, especially from a growing Chinese economy.
For more information on the oil market, visit our oil category.