US Shale Production To Soar By 3.5 Million Barrels/Day Over Next Five Years: BofA Explains Why
Two years ago, when Saudi Arabia launched on an unprecedented campaign to crush high-cost oil producers, in the process effectively putting an end to the OPEC cartel (at least until last year’s attempt to cut production), it made a bold bet that US shale producers would be swept under when the price of oil tumbled, leading to a tsunami of bankruptcies, as well as investment and production halts. To an extent it succeeded, but where it may have made a glaring error is the core assumption about shale breakeven costs, which as we reported throughout 2016, were substantially lower than consensus estimated.
In his latest note, BofA’s Francisco Blanch explains not only why a drop in shale breakevens costs is what is currently the biggest wildcard in the global race to reach production “equilibrium”, but also why US shale oil production could surge in the coming years, prompting OPEC to boost production in hopes of recapturing market share. Specifically, Blanch predicts that US shale oil production could grow by a whopping 3.5 million barrels per day over the next five years.
Here’s why: as he explains “many oil companies around the world have survived the price meltdown by bringing down breakeven costs in the last two years.
But what parts of the world can grow output in the years ahead? In BofA’s view, US shale oil producers will come out ahead and deliver outsized market share gains by 2022. Shale oil output in the US may grow sequentially by 600 thousand b/d from 4Q16 to 4Q17 on increased activity in oil rigs and fast productivity gains. Importantly, breakeven costs for key major US plays now stand around the $55/bbl mark.
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