With the agreement to cut crude oil production to an average of 33.25 million barrels per day (BPD) next year by a number of OPEC members, it is hoped that there will be an improvement in crude oil prices in 2017.
Some analysts even estimate that the 1.2 million BPD cut in crude oil production will increase prices to more than US$ 50 per barrel on average next year. However, the increase in crude oil prices to this level could also trigger the recovery of unconventional oil production (tight oil) in the United States.
If this happens, it is not impossible, production cuts will be in vain because the threat of overproduction lurks again. The US Energy Information Administration/EIA also admits that there is a risk of recovery of rights oil in the US if the price of oil exceeds US$ 50 per barrel.
In the Short-Term Energy Outlook published on Tuesday (12/6/2017) local time, the EIA revealed that in addition to the agreement to cut oil production by OPEC members, a number of non-OPEC oil producers are now also paying attention to holding back or cut production.
The plan, on Saturday (Dec 12) in Vienna Austria, there will be a meeting between OPEC and non-OPEC to discuss production cuts and non-OPEC countries which are targeted to reach an agreement to cut as much as 600,000 BPD.
"If the production cut deal contributes to raising prices above $50 per barrel in the months ahead, this will prompt a return to increased supply of US tight oil sooner than expected," the EIA report said.
Based on the report, the price of crude oil reaching the level of US$ 50 per barrel will increase investment by a number of US oil producers, especially those operating in the Permian Basin.
In fact, the report also estimates that if crude oil prices can recover by exceeding US$ 50 per barrel, it will boost the supply of US Tight Oil in other regions, not only in the Permian Basin. In addition, if this scenario starts, then non-OPEC oil producers that do not participate in the OPEC production cut plan, will also increase their supply.
An increase in supply from US tight oil is not impossible. Moreover, US President-elect Donald Trump has a discourse that he wants to implement US energy independence policies and create greater jobs for US citizens. It is undeniable that the return to high production of tight oil, which is characterized by a large number of drilling and lower 48 US states outside Alaska and Hawaii, will require a large workforce.
However, drilling for the right oil and shale gas using the fracking technique also cannot be separated from the attention of the US public, especially regarding the sustainability of water reserves so resistance appears to be rejected. However, until now there is no certainty as to what kind of policy Donald Trump will take regarding crude oil production and the global community is still waiting until the president-elect is sworn in in January 2017.
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However, the continued increase in global crude oil supply next year is likely to hold back a number of agreements to increase global oil inventories until 2018. Globally, inventory development next year will average 400,000 BPD.
"Although crude oil production will be ready to enter the market when global oil inventories are at high levels, global economic data shows more positive expectations than before," the report said.
The EIA report projects that there will be cuts in US crude oil production throughout 2017, though only by 100,000 bpd to 8.8 million bpd. Meanwhile, so far this year, US crude oil production is estimated to reach 8.9 million BPD. Whereas in 2015, US crude oil production reached 9.4 million BPD.
Meanwhile, OPEC crude oil production is expected to be in the range of 33.2 million BPD next year. Apart from production cuts, there are also a number of problems, such as Nigeria's crude oil supply which is projected to weaken in line with militant attacks on oil infrastructure.
Not only that but Libya is also projected not to reach an agreement in the short term with the Zintani militants who control the pipeline and transportation of crude oil from their large fields, including El Sharara and El Feel. However, in November, there was an increase in production, although not significantly, which almost reached 600,000 BPD. In November, a number of offshore oil fields in the North Sea Atlantic region such as England and Norway have been completed from the routine maintenance schedule.
As a result, collective production from the North Sea increased by 100,000 BPD in November. The increase from the North Sea region, in the short term could weaken the price of Brent oil if it is with crude oil from the Middle East.
"With relatively lower shipping costs, weaker Brent oil prices will make crude oil produced from the Atlantic basin more competitive for Asian refineries, which are traditional markets for Middle Eastern oil producers," the report said.
EIA estimates that the average Brent oil price so far this year will be at the level of US$ 43 per barrel. while the average Brent oil price next year is projected to reach US$ 52 per barrel. Meanwhile, the price of oil on the West Texas Intermediate (WTI) market next year is estimated to be US$ 1 per barrel lower than the price of Brent oil. So, will Trump pump more right oil next year to create more jobs? Or will you participate in pushing up oil prices by holding back production? Let's just wait.
Bisnis Indonesia, Page-16, Thursday, Dec 8, 2016
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