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AM-14-12 Will OPEC Sideline US Producers by Defeating Tight Oil?

Ann-Louise Hittle Wood Mackenzie Boston, MA

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Description:

The trend of non-OPEC supply growth through 2020 is driven by US tight oil. Our forecast shows that gains in US production can be absorbed without overwhelming the global oil supply and demand balance. Political risk in the Middle East and elsewhere has undermined OPEC supply stability and is likely to continue doing so this decade. This leaves room for US oil production growth without collapsing oil prices. US oil supply increases actually have had a stabilizing effect by preventing volatile and sharp rises in the Brent price in the wake of such events as cutting Iranian oil exports through sanctions since mid-2012. Brent oil prices have traded in a relatively narrow range since the oil boom started in the US. While changes have been radical in the US upstream through downstream industry, globally the US tight oil boom has helped provide a supply cushion while the Middle East, as an example, has been undergoing political turmoil in several key producing countries. Given the scale of the losses from several OPEC producers such as Libya and Iran, it would be difficult for OPEC to ramp up output enough to significantly weaken the oil market such that it undermines the supply boom in the US. A decline in oil prices would more likely be inadvertent. Weaker than expected oil demand growth or a sudden increase in production could trigger the decreases in price that hurts the US boom. In this case, a steep decline in global oil prices would be of limited duration. Wood Mackenzie’s break even prices analysis for US tight oil plays show a range from $45 per barrel to $120 per barrel. If Brent oil prices were to fall towards $80 per barrel, within six months to a year, about 40% of new US tight oil production would be at risk for a cutback in planned drilling.

Product Details:

Product ID: AM-14-12
Publication Year: 2014