On December 5, market analyst Irina Slav said that after the implementation of the sea crude oil import ban on December 5, the EU’s crude oil imports from Russia will drop sharply. However, Europe cannot count on U.S. shale oil to make up for the shortfall in Russian crude, and U.S. crude exports to the EU can only replace a fraction of Russian/OPEC crude.
U.S. oil production growth is slowing. Until a few years ago, the market knew that the U.S. shale oil revolution was no longer in full growth mode, and that it might never go back.
On the surface, all is well. U.S. production has rebounded from a low of 9.7 million bpd in May 2020 to 12.3 million bpd in September this year, market analysts wrote last week, noting that this year’s highs are still below the pre-pandemic peak A record of 13 million barrels per day.
What’s more, the country’s oil production has not grown steadily. Production actually fell in two of the past seven months, according to the U.S. Energy Information Administration (EIA). And when it did grow, it was at half the rate of the U.S. shale oil boom.
Under the current administration, however, oil companies are also rearranging their priorities. This administration has been less positive for the oil industry than previous administrations. Returning cash to U.S. shareholders has replaced production growth as the top priority of this administration.
Problems caused by the epidemic blockade have also persisted, such as shortages of materials such as frac sand and steel pipes, and labor shortages. On top of that, the industry has to contend with the inflation that hits every other sector, pushing up costs by about 20%.
All of this means that when the EU restricts its own supplies of Russian oil through price caps and oil embargoes, it can’t really rely on more oil from the U.S. because it relies on stronger gas imports.
The outlook for the U.S. shale oil industry is also less optimistic. According to a foreign media report last week, the spending of the US shale oil industry is nowhere near what it was during the boom.
Other industry executives complained that wells were producing less than expected, and the U.S. Energy Information Administration sharply revised its 2021 output growth forecast.
With U.S. oil production growth slowing, it would be worse news for Europe than slowing U.S. production growth if OPEC regains control. OPEC has said several times in recent months that it has its own agenda, and one that is different from that of the EU.
Instead, the two agendas are very at odds with the EU’s transition plan and OPEC’s plan to continue selling oil for as long as possible. In the short term, however, the interests of the two groups are aligned: the EU will need more oil from OPEC, and OPEC is likely to be more than happy to provide it, at market prices of course.
(Daily chart of Brent crude oil main contract)
At 22:02 on December 6, Beijing time, the main contract price of Brent crude oil was reported at 81.36 US dollars per barrel.