IEA's Birol sees $60/bl as oil price cap

OREANDA-NEWS. March 31, 2016. A crude price of \\$60/bl could trigger a rebound in US shale oil production, so this level may be a new cap on crude prices, IEA executive director Fatih Birol told Argus in Beijing today.

Resilient US producers have managed to finance and hedge shale oil output despite crude prices of around \\$40/bl, but the IEA sees a decline in production at this price. "We expect, at these price levels, more than a 500,000 b/d decline in US shale output this year. But if the price sometime soon goes to \\$60/bl we may well see output rebound — and so \\$60/bl may come to represent a cap on oil prices," Birol said.

But a rise in Iranian production could offset this loss in US supply, Birol said. "We expect Iran can increase output from existing fields by 500,000 b/d, but this is from existing fields. But to see a huge increase you need to develop new fields such as Yadaravan, and to do that you need capital to flow in and new technologies to flow in, because Iranian fields are geologically much more complex than the Gulf Co-operation Council members' fields. So I do not expect a major increase in production capacity from Iran in the short term."

A meeting of some Opec and non-Opec oil producers planned for Doha on 17 April needs to lead to "a decision that could really have some concrete results", Birol said. "It is up to those countries to decide to cut or freeze. In the absence of any other policy changes, we expect oil markets to rebalance in 2017, as US shale oil production is declining significantly."

Birol's view on the oil market balance reflects last month's IEA Oil Market Report (OMR). "For the first half of 2016, the implied surplus of supply over demand remains high at 1.9mn b/d in the first quarter and 1.5mn b/d in the second quarter," the IEA's March OMR said. "In the second half of 2016, the gap between supply and demand narrows significantly to 200,000 b/d," it said. "We cannot be precisely sure when in 2017 the oil market will achieve the much-desired balance."