The U.S. shale energy revolution is making its mark on global financial markets.
Since the beginning of last year, the U.S. has steadily pared its petroleum trade deficit, ramping up exports and tapering back imports of oil.
This has arguably had the effect of recoupling the dollar with the global growth cycle, which BofA Merrill Lynch strategist David Woo says should reduce macroeconomic volatility in the U.S. going forward.
With the U.S. supplying the world with more and more oil, it may seem logical to assume that the shale revolution will keep downward pressure on oil prices going forward.
“The rapid development of US shale has led some in the market to be concerned that we are now moving into an oversupplied position on supply [in global oil markets],” says Barclays oil analyst Rahim Karim and his team in their latest report.
However, the Barclays team disputes this.
“Going forward, our expectation is that the rate of growth from US shale oil will slow and when combined with slower growth than previously anticipated from other key production areas including Iraq there will be minimal growth in OPEC spare capacity,” write the Barclays analysts.
They provide the chart below and the following explanation:
Growth in US shale oil entirely offset by lower expectations from Iraq: The graph below demonstrates how expectations of supply growth have changed from 2011 to the present day. With the development of US Shale, the EIA has lifted its expectations for incremental supply growth from 2011 by a total of 0.6mb/d over the 2013-16 period. However, on a global basis this uplift has been more than offset by our lower expectations of growth from Iraq down by almost 2mb/d over the same period.
If the Barclays projections play out, increased oil supply may not be as big of a downward price pressure as many think.
“As a result we anticipate the Brent oil price remaining above $100/bl in the medium and longer term,” writes the Barclays team. “In turn this should support continued capital expenditure in the industry, hence our continued preference globally for Oil Services.”
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