U.S. shale to cap oil prices in 2015

Grange29 August 2014 – Increased supply of shale oil from the United States and sluggish global demand will cap oil prices next year despite conflicts in Iraq, Libya and other producers, according to the consensus forecast in a Reuters poll of oil analysts.

The 28 analysts polled by Reuters forecast Brent crude oil would average $105.30 a barrel in 2015, little changed from the $105.20 forecast in the July poll. The North Sea benchmark has averaged $108.13 so far this year and $108.70 in 2013.

The poll forecast U.S. light, sweet crude, also known as West Texas Intermediate or WTI, would average $98.50 a barrel in 2015, up from $97.30 in the July poll. WTI has averaged $100.50 so far this year.

U.S. production will increase while the marginal cost of producing oil from shale deposits is expected to be lower than the price of WTI over the next three years, according to Rahul Prithiani, director at CRISIL Research.

The U.S. Energy Information Administration recently projected that U.S. production would average 9.3 million barrels per day in 2015, its highest annual level since 1972.

In addition to the shale bonanza in the United States, analyst Torbjørn Kjus of DNB Markets expected meaningful supply growth from Canada, Brazil, China and Russia.

Analysts forecast non-OPEC supply growth would outpace oil demand growth next year, reducing the need for OPEC oil.

Barclays analysts said political risks are likely to check production in Iran, Libya and Iraq and support oil price levels for 2014 and in 2015.

Brent’s premium to its U.S. counterpart should narrow to $7.50 per barrel in 2014 and $6.80 a barrel in 2015 from $10.58 last year, the poll showed.

Raiffeisen Bank International had the highest 2015 Brent forecast at $119.50 a barrel, while OCBC Bank had the lowest at $90.
*Arpan Varghese & Ratul Ray Chaudhuri – Reuters

About the Author