Shale has unquestionably impacted global crude oil prices, quality mix, and trade flows. But shale is too small, too slow, and too competitive (if shale chief executives tried to collude, they would face prison) to play the swing producer role. Other than abhorring boom-bust price cycles, shale and swing producers share little in common.
Looking ahead, shale is unlikely to sustainably grow enough to quench the world’s raging thirst for oil. Three years of lower oil prices have boosted demand, and the vaunted energy transition from oil to electric vehicles will arrive much later than advertised.
A world economy growing at the nearly 4 per cent rate the IMF projects will require nearly 2m barrels a day of net supply growth per year, which means adding 4-5m b/d of new gross supply considering declines from existing fields. Even if shale grows 1m b/d annually, it will not unilaterally meet global supply needs.
Thus, barring an economic downturn, by early in the next decade the world economy will need but lack new oil production from longer-cycle conventional projects cancelled or delayed since the 2014 bust.
Goehring & Rozencwajg Report
"Our models tell us that global inventories will continue to draw and we run the risk of a huge upward move in prices starting right now” according to a report by Goehring & Rozencwajg. “We are being presented with the buying opportunity of a lifetime” in the energy sector.
“Global oil inventories continue to draw rapidly and we have now reached the point where further drawdowns will put severe upward pressure on prices. Oil production from the US shales has slowed significantly in the last six months . . . Despite continued rampant bearishness, global oil demand continues to significantly exceed supply and global inventories are now drawing at record rates.”
“As Chart 1 vividly shows, we are now drawing down global inventories at the fastest rate ever experienced. Readers of our letters will be familiar with the drivers of this rapid drawdown: global oil demand is surging, while non-OPEC oil supply (both here in the US and abroad) is disappointing . . . the inventories have now drawn down to critical points where further inventory reductions will result in severe upward price pressure.”
When this has occurred historically oil prices “surpassed $100 per barrel”.