US oil production will increase both this year and next despite the 60 per cent slide in oil prices since mid-June and an Opec policy designed to rein in the North American shale boom.
The forecast, by the US government, came as a leading Opec producer said the cartel was sticking to its strategy of maintaining output and testing the mettle of high-cost producers around the world.
The US Energy Department said output would rise by 600,000 barrels a day this year to 9.3m b/d and by 200,000 b/d to 9.5m b/d in 2016.
The projected increase for this year is slightly lower than a previous a forecast in December, reflecting the pressure of lower crude prices on the US oil industry.
“Many oil companies have cut back on their exploration drilling in response to falling crude prices and will concentrate their drilling activities in established areas that already have productive wells,” the department said.
The combination of technologies such as horizontal drilling and hydraulic fracturing, or “fracking”, has unlocked America’s vast shale resources and propelled US production to around 9m b/d.
The official estimates suggest the US shale industry has proved more resilient in the face of collapsing oil prices than initially feared. Although production will slow, officials said output next year will be at its highest level since 1970.
However some analysts are less optimistic, predicting a major pullback in investment which will lead to production declines by the end of this year.
The slide in oil prices accelerated in November last year after Opec, the producers’ cartel, which pumps a third of the world’s oil, decided to keep output steady at 30m b/d, rather than cut its production to shore up prices.
Speaking at an energy conference in Abu Dhabi, Suhail bin Mohammed al-Mazroui, the oil minister for the United Arab Emirates — a leading Gulf producer — said the cartel would not change its strategy.
“We have seen oversupply coming from shale oil and that needed to be corrected,” he said.
Opec has shown no signs of capitulation despite poorer members of the cartel such as Venezuela voicing concern about low prices. Iranian president Hassan Rouhani said on Tuesday that Saudi Arabia and Kuwait would also suffer from the drop in oil prices.
So pessimistic are investors about the oil price that some have placed bets on US crude slumping to beyond $20 a barrel, a level last traded almost 13 years ago.
The number of outstanding contracts that give the right to sell US benchmark West Texas Intermediate at this level by June, known as put options has swelled from almost zero at the start of the year to 13,129 lots, according to Nymex data. This is the equivalent of 13m barrels of oil.
The latest trades underscore the scale of the oil rout and the still murky outlook for the world’s staple industrial commodity. Even at the height of the 2008-09 financial crisis — when much of the developed world was marred in recession — did US crude or its international counterpart Brent reach $30 a barrel.
The appearance of these pessimistic wagers since the start of the year does not necessarily mean the market will reach those levels. But traders have said these bets are a low-risk, low-cost way to bet on further falls in prices that have already dropped by almost 60 per cent since mid-June. Each option costs just 7 cents.
So far, these contracts are heavily “out-of-the-money”, in financial parlance. with current prices more than double the $20 strike price. But even if West Texas Intermediate oil does not fall to this level, these options can increase sharply in value if oil starts dipping closer to it.
ICE February Brent fell $1.54 to $45.90 in afternoon trading while Nymex February West Texas Intermediate declined 60 cents to $45.47 having briefly traded at parity with the international oil benchmark. Both markers are at the lowest since March 2009.
The price of Brent crude has fallen by more than 20 per cent since the start of the year, while WTI has dropped by 16 per cent, coming under further pressure as oil market watchers downwardly revised forecasts.