Shale Oil Makes Assessments More Difficult

Oil surplus or scarcity? Shale oil makes future oil even harder to predict.

The shale oil boom has transformed the U.S. and global energy sector.  It has upended traditional supply dynamics.  Furthermore, it has made forecasts far more polarized.

Investment banks, many of which finance new projects, along with oil majors such as Total and Eni, have warned that huge spending cuts caused by a plunge in oil prices since 2014 would lead to a supply crunch in the next two years.

Nevertheless, Goldman Sachs believes a looming recovery in U.S. output will create a substantial surplus by 2019.    This is because higher oil prices will bring an avalanche of new conventional projects.  They are the only bank to make more than $1 billion a year from commodities trading.

Prior to the shale revolution, conventional oil was the only game in town. Estimating future supply essentially involved calculating the project pipeline and factoring in the “unknown knowns” such as political risk in oil-producing nations.

However, the ability of the shale sector to adapt quickly and nimbly to a lower-price environment means production cycles have shortened.  Fields can be switched on and off in a matter of weeks.

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