‘Happy days’ post-OPEC meeting remain tied to U.S. shale

OPEC’s decision to extend its oil output cap with non-OPEC producers for another nine months didn’t disappoint markets and Brent crude prices so far continue to trade around $60 a barrel.

However, experts at the Center for Strategic & International Studies (CSIS) warned Tuesday the “happy days” for producers” post-OPEC meeting remain threatened longer term by U.S. shale, Kallanish Energy learns.

“The November 30 OPEC meeting admittedly sustained higher prices and happy days for producers, but longer term, a cautionary note is warranted,” the experts said. “Despite the extension of the official agreement to the end of 2018, if U.S. shale proves more robust than current expectations, or demand disappoints, a midcourse adjustment could be announced next summer when the ministers convene in Vienna on June 22.”

The experts said OPEC will need to monitor developments carefully in the Permian, Anadarko, and other basins, and make sure prices don’t encourage too much U.S. shale oil production or undermine demand growth going forward.

“Cost inflation, reinvestment rates, and productivity trends need to be closely watched and OPEC’s own production plans quickly adjusted accordingly,” they commented.

But ongoing concerns over “a myriad of issues” could prevent output projections for the U.S. from being realized, such as frac hits/well interference, lack of takeaway infrastructure, water availability, personnel issues and overstressing formations.

Public concerns related to water contamination, use and disposal at scale, seismicity, among other matters could also impact production growth, the experts said.