United States shale companies exposed to falling oil prices as hedges expire

Jun 15, 2017, 01:32
United States shale companies exposed to falling oil prices as hedges expire

In its first forecast for 2018, the International Energy Agency said Wednesday it expected countries outside the cartel to increase production by about 1.5 million barrels per day, outstripping the growth in global demand.

Oil prices have fallen by about 10% since Opec and non-member countries including Russian Federation recently agreed to extend production cuts until the end of March 2018.

In its latest monthly report, the IEA expected a larger than expected increase in non-OPEC output of 700,000 for 2017 and the IEA also expected a further increase for 2018.

"Our first outlook for 2018 makes for sobering reading for those producers looking to restrain supply", the Paris-based agency said in its report.

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Sign up now and get breaking news alerts delivered to your inbox. "Higher prices in winter than summer?" Traders will be watching figures on last week's USA stockpiles to be released later on Tuesday by industry group the American Petroleum Institute.

At 4:45pm BST, the Brent contract for August delivery was down 3.78% or $1.84 to $46.88 per barrel, while the West Texas Intermediate contract for July delivery was down 3.85% or $1.79 to $44.67 per barrel. The oil price has declined more than 10 percent since the May agreement.

As per the ASB, in 2016, world crude oil production inched up by 0.35 mb/d, or 0.5 percent, as compared to 2015, to reach 75.48 mb/d, marking the seventh consecutive year of growth.

Crude futures started the day on the front foot, as Saudi Arabia pledged to reduce exports to customers in July in an effort to help curb the glut in supply.

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In the report, OPEC pointed to continued high compliance by its members with the supply deal and said oil stocks in OECD nations fell in April-although they are still 251 million barrels above the five-year average. He added that "OPEC should rethink its strategy of trying to verbally and artificially drive oil prices higher, because the result of [its current] strategy is very resilient USA production".

Overall sentiment remained downbeat however as the market has little confidence that production cuts by OPEC and Russian Federation are helping to drain excess supply.

Compared to May 2016, Opec crude production was down by 65,000 bpd, the IEA said.

The IEA forecast that non-Opec output will rise this year by 660,000 bpd compared with last year's decline of 845,000 bpd, and then accelerate next year by 1.5 million bpd, led by the U.S. and with gains from Brazil and Canada offsetting declines in the United Kingdom, Kazakhstan, Ghana, Congo, Mexico and China.

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Total domestic production also climbed by 12,000 barrels to 9.330 million barrels last week, after posting a decline a week earlier, according to the EIA.

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