The world’s major oil ministers and industry leaders meet in the US city of Houston for the annual CERAWeek, the largest annual industry gathering in the Americas.
And while they are meeting data could show that US oil production has topped or come close to matching production for a year ago – around 9.08 million barrels a day.
But oil prices up around 70% from a year ago, with major indicator prices well over $US50 a barrel and a production cap agreement in place that has helped trigger the price surge, along with rising global demand.
The upbeat outlook has translated into a more confident tone in the industry, especially in the US where the number of bankruptcies has fallen, while investors are more confident about backing companies.
So far in 2017 US energy companies have raised $US10.5 billion in fresh equity, with shale and oil service groups drawing the most investment, the best start of the year since at least 1999 and equal to a third of what the sector raised in the whole of 2015, according to data from Reuters and Bloomberg.
And yet confidence is sagging from the more upbeat levels of even a month or so ago as US production climbs remorselessly.
Energy outdid all other Wall Street market sectors last year, up nearly 24% thanks to the OPEC production cuts agreement, and the election of Donald Trump.
But since mid-December, energy shares have lagged the wider market so far this yearn energy as a sector is down 5% compared with the 6% rise for the S&P 500.
US oil producer shares jumped after the November 8 win by Trump, but have failed to go on with the rally this year as doubt have emerged about the reliability of the price rise and its sustainability, and the rapid growth in US oil output so far in 2017.
Investors are also looking at the impact from Trump’s policies (whatever they are). Since the election, refiners are up 10%, while oil producers have gained less than 2%.
Now the oil sector is no longer as upbeat – thanks to the weekly drumbeats from the production and stocks data from the Energy Information Administration on Wednesdays and Friday’s weekly rig use reports from Baker Hughes, a major oil and gas services group.
That has shown the number of US drilling rigs in use has grown 92% to 609 in just over nine months, while the total number of rigs in use (including gas) has soared 85% to 756.
US production has gained more than 550,000 barrels a day since the summer, rising above 9 million barrels a day for the first time since April. (9.032 million barrels last Friday week and just 45,000 barrels a shay under the figure for the same week in 2016).
US stocks rose 1.5 million barrels to 520.2 million barrels, the highest ever at this time of year.
The Energy Information Administration has forecast that US’s oil output will average 9 million barrels a day this year, up from 8.9 million barrels a day in 2016.
BHP Billiton has boosted investment in its shale operations since last fall, forecasting the sector to become the single largest generator of cash flow for its petroleum business within five years.
“We expect a balanced oil market in 2017 for the first time in nearly three years,” said Steve Pastor, president of BHP’s petroleum business told Reuters.
BHP has committed itself this year to funding its $US2.2 billion share of BHP’s second Mad Dog field in the Gulf of Mexico and committed to more than half a billion dollars of spending on the Trion discovery in Mexican waters of the Gulf with Pemex, the country’s state owned oil major. BHP is the first foreign company to joint venture with Pemex.
Saudi Arabia’s energy minister Khalid al-Falih, who assumed his role last spring and whose country has contributed the largest share of OPEC output curbs, addresses the Houston conference tomorrow night, while, Russian Oil Minister Alexander Novak, speaks tonight.
Analysts are waiting for both men to give some idea if the production cap will last past the June end data in last November’s agreement.
Reuters reported that "The meeting won’t be without simmering tension between U.S. oil producers and OPEC. One of the biggest questions in the oil market is how quickly and how much shale producers will boost output. A sharp rise from the U.S. shale patch could undo the Saudi-led deal to reduce the global oil glut.”
Such have been the rise in market fears about rising US shale oil production that many analysts wonder if global prices will get to $US60 a barrel before the June cut off date. An agreement before then for an extension of the agreement until next November could be the trigger.
But a surge in prices could very well provide a further boost to US shale oil production, and see natural oil output stimulated from non-OPEC countries. The higher US production rises, the greater the pressure on the nerves of the Saudis and Russia in particular.
