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Energy 25 January, 2018 11:00 am   

Shale revolution on designer drugs (ANALYSIS)

The rising price of petroleum is influencing the shale revolution like steroids or some designer drugs. It also threatens the agreement that was supposed to guarantee budgetary stability to countries dependent on the sale of raw materials – writes Wojciech Jakóbik, editor-in-chief of BiznesAlert.pl.

More expensive petroleum improves the budget situation in Russia, and you can read more about it on BiznesAlert.pl. The forecasts that it supports the shale revolution are also confirmed. The US Energy Information Agency (EIA) reports that petroleum production in the US is expected to increase by 1.8 million barrels per day this year. That is exactly the amount by which supply has fallen as a result of the petroleum agreement. The increase in production in the USA is expected to account for 80 per cent of the world’s supply growth by 2025. This is also when the demand will peak. The International Energy Agency predicts that it will then decline due to the development of alternative fuels.

Show must go on

Nevertheless, Russia reports that the next meeting of the OPEC+ Committee monitoring the implementation of the petroleum agreement ended with a decision to maintain it in force. This is to be due to persistent market imbalances. The agreement was executed in 107 per cent, and the price of petroleum increased by 30 per cent in 2017 year-on-year. However, the agreement was meant to be a temporary solution, but due to the fear of price depression, its shareholders do not decide on a turn in politics. It would involve the release of 1.8 million barrels of petroleum of production per day, by which extraction has been reduced by the agreement.

According to OPEC economists, an increase in the price of WTI petroleum, i. e. the Texan blend in the US market, of more than USD 50-55 per barrel, will result in an increase in drilling activity and an acceleration of the shale revolution in 2018. The beginning of the year was an opportunity to break through the 60 dollars limit per barrel of WTI. This is where EIA’s announcement of a possible change to the petroleum producers’ podium in favour of the Americans came from. The Agency is already warning that the demand for petroleum in the world is diminishing as shale petroleum production increases in the United States. The demand growth averages 1.3 million barrels per day. However, price increases are expected to reduce this ratio.

Petroleum is already reacting with slow falls. Perhaps, in order to stabilise it at its current level, the Russians are sending out a signal that the “temporary” petroleum agreement could be extended beyond 2018, even though, after a further extension, it was due to end with this year. – The current market situation is not yet a certain point of reference, so we need to continue our cooperation – said Alexander Novak, the Russian Energy Minister. As we can see, the shareholders are still in the price trap and do not know how to dismantle it.



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