KUALA LUMPUR: The worst is not over yet for oil and gas (O&G) companies as shale oil producers ramp up production and oil prices make a slow recovery.
Analysts and industry observers expect uncertainty to loom for the rest of the year as industry assumption remained at US$50 (RM221.50) a barrel.
Petroliam Nasional Bhd (Petronas) was more conservative, expecting an average of price of US$45 a barrel.
“We are maintaining our this year’s average Brent crude price at US$50 a barrel as we see more uncertainty with crude oil prices towards the downside bias,” said an analyst at MIDF Research.
Oil prices fell more than one per cent yesterday as investors made record cuts to bet on rising prices after strong drilling data from the United States fed concerns about the effectiveness of production cuts led by Organisation of the Petroleum Exporting Countries (Opec) to curb a supply glut, Reuters reported.
Benchmark Brent crude futures were down 60 cents at US$51.16 a barrel. The West Texas Intermediate crude futures were trading at US$0.71 lower to US$48.07 a barrel.
Shale oil seems to be picking up production, taking its cue from the more bearish crude oil prices despite short-term bounces, supply cuts and improved demand estimates.
With the evolution of shale oil technologies, shale oil production break-even price seems to be going even lower, paving the way for production to be increased as crude oil prices rally.
Recent reports showed that oil production from the US shale producers would increase next month, according to the United States Energy Information Administration (EIA).
“High market prices are supported by Opec cutbacks, and the higher profits are funding the growth of American firms’ drilling.
“The EIA report predicts that net oil production will increase by 109,000 barrels a day next month. The seven major oil and gas basins in the country would have an output of more than nearly five million barrels a day collectively,” it said.
Last week, Petronas decided on US$45 a barrel as its conservative estimate for this year as it prepares for another challenging year ahead.
A source close to the company said it had been requested to increase production in Iraq to 120,000 barrels a day compared to 100,000 barrels a day subject to both parties’ agreement. Iraq currently outputs about 4.3 million barrels a day.
As Opec’s second largest producer, Iraq is crucial to the success of the deal signed last November to prop up oil prices.
But Iraq has lagged behind other Opec members in its efforts to reduce output.
It agreed to cut production by 210,000 barrels a day from the October levels, requiring it to average an output level of 4.35 million barrels a day over the course of the six-month compliance period between January and June.
Meanwhile, the supply cut deal struck between Opec and other producers is now in doubt due to the cartel’s inability to ensure that everyone on board abide by the agreed production cuts.
Saudi Arabia is the only member that reduced output by more than the agreed numbers, according to Opec figures (130,000 barrels a day cut above its agreed production), while Russia is at almost at a third (118,000 barrels a day compared with the agreed 300,000 barrels a day).