Due to a lack of growth in North American shale production and increased decline in mature fields, a Brent price as low as 50 USD/bbl is not sustainable beyond 2016, shows recent oil market research undertaken by Rystad Energy.
Around ten thousand shale wells would need to be drilled each year in order to keep North American shale production flat. Assuming balanced cash flows, costs would need to be decreased by 20% in 2015 vs 2014 at a price of 50 USD/bbl to drill those wells according to conducted well-by-well breakeven modelling.
While 70 USD/bbl is likely too high an average price for 2016, it is too low an average price beyond 2017 as the additional effect of non-sanctioning of projects reduces the global supply potential longer term.
“Our current market view is neutral to bearish in the short-term as we see a production floor at 30 USD/bbl. At such a low price, the supply response in US shale production coupled with already visible drops in infill drilling in the Gulf of Mexico and North Sea will be so severe that the price cannot remain that low for long,” says Nadia Martin, Senior Analyst at Rystad Energy.
Although the oil market is currently well-supplied and oil stocks remain high, Rystad Energy remains bullish in the longer term, with foreseeable price spikes for Brent already in 2016. The current futures curve is trading too low for marginal producers to hedge their future production.
Nadia Martin, Senior Analyst
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Julia Weiss, VP Marketing
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About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Africa as well as South East Asia.
About the Global Oil Market Trends Report
The Global Oil Market Trends Report (OMTReport) reveals Rystad Energy’s demand forecast against its bottom-up, field-by-field supply forecast. It includes our market view for oil price direction & forward curve development, explaining market fundamentals, global S&D history and outlook, cost of supply curves, and regional variations.