Don’t count out US shale producers yet

George Kessarios

George Kessarios
Chief Economist & Fund Manager

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Analyst Insights, Friday, 27th of July, 2020

OPEC expects demand for its crude oil to rebound in 2021, even surpassing pre-COVID-19 levels. 

This sharp increase in demand for OPEC oil, surprisingly, will not be driven by an increase in world demand. Demand, in 2021 is expected to be around 97.7 million barrels a day, which is lower than what demand was in 2018. 

On the other hand, non-OPEC supply is forecasted to plunge by a 3.3 million barrels a day in 2020 and will rise by only 920,000 barrels a day in 2021. In other words, the war that Saudi Arabia and its non-OPEC partners like Russia waged on US shale producers seems to bearing fruit. 

However, OPEC can only claim victory if oil stays at levels below $50 a barrel. Anything above those levels will probably open the floodgates of oil production by US producers.

But don’t count out US oil production just yet. The sector is going through a massive restructuring at the moment, with companies either going chapter 11 and assets being acquired by bigger players, or smaller players are being bought out, like the recent Chevron - Nobel acquisition. 

The bottom line is, keep an eye on US shale producer’s and oil service providers. Because while in the short term many are licking their wounds, longer term, and after the current restructuring, these companies will probably appreciate by a lot in value.

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