Taal selectie

Oil

Shale is the name of the game

After a brief interruption – due to the hurricanes disturbing oil production in the Gulf of Mexico/Texas, as well as hindering refinery output and seaborne transport of crude oil – US inventories resumed their rapid decline at the end of September. We still expect them to reach a normal level within the next couple of months. Meanwhile, in other OECD countries, excess inventories have already been eliminated.

CrudestocksSource : Bloomberg

Continued speculation by short-term investors (e.g. hedge funds) kept the WTI oil price very volatile during the month of September, but its general trend – in place since the latter half of June already – remains upwards. It gained 9% over the month, with shares of shale oil producers following suit (up 14% on average).

Saudi Arabia and Russia, the two driving forces behind the agreement on oil production discipline, are talking about extending the current deal through the end of 2018, in a bid to push the oil price above USD 60 per barrel. With inventories closer to a normal level and the world economy growing at a healthy pace, this seems a feasible goal.

Around the USD 60 level, however, shale oil producers in the North Dakota Bakken basin will also begin to increase their production (which has been stable this year at 1 million barrels per day), while Permian and Eagle Ford Basin (Texas) producers will pump all that they can – limited only by the lack of fracking capacity. But even if the WTI oil price (WTI) finds itself capped at USD 60 per barrel, shale oil producers will be the clear winners and their shares have (very) substantial upside, especially those based in the Bakken basin.

(update : 12.10.2017)