Can US Shale Tug Future Crude Oil Prices?

The year 2020 is still far off, but some sectors are already speculating on the long-term effect of United States shale oil and Canadian oil sands on crude oil prices. Experts are divided on whether it’s a push or pull.

According to David Hufton of PVM, an oil brokerage firm, advancement in technology has led to the discovery of alternative energy sources. This has changed the supply picture, especially in the U.S., where “peak oil” may soon become a bygone word.

Hufton said that the U.S. is the biggest oil consumer whose local oil supply has grown faster than its domestic consumption. This could be the start of a long-term trend which could alter the oil market not only in the country, but in the entire globe as well.

Brent current crude oil prices have reached $110, but, 8 years ago, no one would have guessed that prices would exceed the $100 mark. Now, oil analysts are trying to come up with longer-term predictions that extend out to about 8 years.

Reuters conducted a survey on what crude oil prices might be by 2020. According to 20 survey respondents made up of oil experts, bankers, and other professionals, North Sea Brent would reach an average price of $118 per barrel.

However, a closer look into the individual responses show that merely 5 have given forecasts that are near this average. Also, respondents are divided – one group says there is enough shale oil to feed consumption. The other group believes otherwise, stating that reports on shale volumes tend to be overblown.

Capital Economics’ Julian Jessop says prices will be lower in 2020 as there will be an oversupply of oil matched by low demand. Of the 7 “bear” respondents, Capital Economics gave the most bearish prediction, pegging future crude oil price per barrel at merely $70.

On the other hand, bullish forecasts were issued by Barclays Capital, Bernstein Research, and JBC Energy.

Barclays predicts Brent would reach a per barrel price of $184, followed by Bernstein’s $158, and JBC Energy, at $148.20.

Shale oil has certainly bolstered U.S. energy supply, but Bernstein says production volumes from non-traditional energy sources (including Canadian oil sands) won’t be significant enough to really trigger a glut in the world oil market.

Even Michael Dei-Michei of JBC Energy doubts that these sources could push down the crude oil price per barrel to a more comfortable level.

At the moment, the oil market is bearish.  Meanwhile, oil futures markets currently trading for December, 2019 oil was reflecting Brent prices at $91. This forward price is somewhat close to the marginal cost of production forecast applicable to new frontiers such as shale.