U.S. shale production is expected to surge throughout the remainder of the year but investors should be prepared for nowhere near as much growth in 2018, according to Dan Yergin, vice chairman at IHS Markit.
“We still see U.S. shale continuing to grow and being an important part of the supply but I think this year you’ve got this really powerful rebound and it’s baked in for the rest of the year,” Yergin told CNBC on Tuesday.
Speaking on the sidelines of the World Petroleum Congress in Istanbul, Yergin explained that shale’s impact on the market had changed the structure of the industry.
He pointed to the fact that while the rest of the market was either flat or declining, U.S. shale was continuing to rise “and that’s because people want to have that short cycle oil.”
Most of the world’s biggest energy traders appear to be betting that shale oil production is here to stay. However, while Yergin admitted his views were in the minority among major investors, he predicted “nowhere near as much growth” in 2018.
In May, OPEC and allied non-OPEC members agreed to cap oil production through to March 2018. However, despite OPEC and non-OPEC producers ratifying a deal to extend output cuts, prices have slumped.
Brent crude futures, the international benchmark for oil prices, have tumbled more than 9 percent since the announcement, in part because of the increased production levels of Nigeria and Libya – two OPEC members exempt from cutting output.
Michael Cohen, Barclays‘ head of energy commodities research, told CNBC on Tuesday that while he remained “constructive” regarding oil prices in the short term, he had significantly lowered his price projections over the mid-term.
Cohen argued the reason he slashed his forecast was because the market still had too much supply and U.S. producers had proven they were able to do more with less.
“(U.S. producers) were able to add more volume in 2016 than they were in 2012 at half the price. So even though we expect some cost inflation over the course of this coming year, it won’t be enough to limit them and to handicap them just because of the productivity gains and efficiency gains that they’ve been showing,” he explained.
Brent crude traded at around $46.59 a barrel on Tuesday morning, down 0.64 percent, while U.S. crude was around $44.14 a barrel, down 0.59 percent.
US shale production will see sharp growth slowdown in 2018, IHS says