Fitch Ratings, said in a report Wednesday that the U.S.’ rising shale oil production is expected to drive crude oil prices below $60 a barrel this year, where they will remain in the long-term,
The global rating agency said U.S. shale growth should result in a production surplus in 2018, which would result in global oil production exceeding demand this year, pushing oil prices below $60 per barrel.
In addition, U.S. shale has the ability to meet a significant portion of global oil demand growth, and this will keep crude prices between $50-$60 per barrel range in the long-run, the agency said.
According to the report, Fitch said “Our expectation that U.S. oil production, including gas liquids, will rise by at least 1.5-1.7 million barrels per day in 2018 is based on progress so far, the rising number of drilling rigs and continued efficiency gains.”
However, Fitch Ratings revised up its price forecast in the report titled; Oil Prices Respond to OPEC-plus, but Shale Likely to Push Them Back Below $60 a Barrel.
For the upward revision, the agency said OPEC and non-OPEC’s production cut agreement is successfully reducing the excess crude oil stocks in the global market, and added, “our expectation that compliance with the agreement will remain fairly strong in 2018.”
As a result, Fitch Ratings said it increased oil price estimates by $5 per barrel for this year and $2.50 a barrel for next year.
International benchmark Brent crude is now expected to average $57.50 per barrel starting from this year through 2020, it said.
American benchmark West Texas Intermediate is forecast to average $55 a barrel during the same period.
On the other hand, although compliance to the production cut agreement remains strong, mostly driven by Saudi Arabia and Russia, Fitch said OPEC’s ability in the market is “questionable.”
“In the longer term, the ability of OPEC to control production and prices is questionable, given the gradual adjustment of participating producers to lower oil prices and their unwillingness to cede market share to U.S. shale producers,” the report said.