US Oil Rolls With OPEC's Blows as Brazil and Canada Take Hits

(Bloomberg) -- Eight months into OPEC’s plan to hit rival oil producers, the casualties are mounting. Surprisingly, the most resilient may be the one that triggered the fight: the U.S.

Projections for combined daily output from Brazil, Canada, Russia, Mexico and Colombia by the end of the decade were cut by 2.8 million barrels since oil slumped last year, data from the countries and the International Energy Agency show. In contrast, the U.S. Energy Department increased its estimate for crude output in 2020 by more than a million barrels.

Prices fell more than 45 percent in the past year after the Organization of Petroleum Exporting Countries refused to cut output, instead pressuring rival producers to eliminate a global supply glut. While the number of active U.S. oil rigs has halved, production remains close to a three-decade high and is forecast to keep growing after a pause in the coming year. Projects elsewhere will suffer more, according to Standard Chartered Plc and BNP Paribas SA.

“Some have misinterpreted OPEC’s strategy as targeting U.S. shale oil production,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas in London. “But any attempt at shutting down U.S. shale oil will prove futile. Rather, OPEC has aimed at crowding out investment in higher cost and less efficient conventional basins.”

Massive Surplus

Brent crude futures, a global benchmark, fell 31 cents to $56.61 a barrel on the London-based ICE Futures Europe exchange at 10:08 a.m. New York time. The market remains “massively oversupplied,” the IEA said July 10.

While U.S. drillers are in retreat, their flexibility and declining costs will help them endure, according to Torbjoern Kjus, an analyst at DNB ASA in Oslo.

U.S. shale-oil output will slide by 91,000 barrels a day in August, the biggest monthly pullback since the start of the boom in 2007, the Energy Information Administration said this week. That follows a 61 percent drop in the number of active drilling rigs between December and June, Baker Hughes Inc. data show.


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Copyright 2016 Bloomberg News.


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