Baku, Azerbaijan, Dec. 28
By Taleh Mursagulov – Trend:
Increasing new pipeline capacities will lead to a new wave of oil production growth in the US, Deputy Director of Russia’s Analytical Credit Rating Agency (ACRA) Vasily Tanurkov told Trend Dec. 28.
He said that the lack of pipeline capacities was a significant factor constraining the growth of shale oil production in the US in the first half of 2018. The rapid growth of production in the second half of 2018 was made possible only due to an increase in prices sufficient to offset the costs of railroad oil transportation, he noted.
“However, already in the second half of 2019, the transport restriction on production will be lifted through commissioning of four new pipelines (Cactus II, Enterprise, EPIC and Gray Oak) with a total throughput capacity of 2.67 million barrels per day,” he said. “By the end of 2020, three more pipelines (Exxon/PAA JV, Jupiter and Permian-Gulf Coast) with a combined capacity of two million barrels per day. Commissioning new pipeline capacities will lead to a new wave of US production growth, and this will exert pressure on oil prices in the second half of 2019 and 2020.”
He also noted that if the world really enters a global recession, the fall in the stock market is just beginning and oil may eventually reach the 2016 lows ($27 per barrel of Brent crude oil).
“However, in the long run, this price level cannot be sustainable, as it will lead to rapid reduction in shale oil production in the US and a slower, but steady decline in global production,” he said. “In the worst case scenario (the beginning of the global recession in 2019), we expect the average annual price for Brent crude oil within $45-$50 per barrel. At the same time, our baseline scenario implies the absence of global recession in 2019 and the return of oil prices to $60-$65 per barrel of Brent oil.”
He also added that the growth of oil prices in the first half of 2019 will be facilitated by the start of the implementation of the OPEC+ deal (production cut by 1.2 million barrels per day from January 2019).
Oil may receive an additional impetus in late April-early May because exceptions to the sanctions given by the US to the importer countries of Iranian oil expire in early May, and this may lead to a significant decrease in production in Iran, he said.
“At the same time, in the second half of the year, acceleration of shale oil production in the US is possible, and this will become a deterrent factor for oil prices,” said Tanurkov.
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