Surging oil production in the United States is putting the brakes on crude prices, recently in recovery from a long slump resulting from a worldwide supply glut, the International Energy Agency said on Tuesday.
"Oil price rises have come to a halt and gone into reverse," the IEA wrote in its monthly oil market report, saying the "main factor" behind this was booming US oil production. "For now, the upward momentum that drove the price of Brent crude oil to $70 per barrel has stalled," it said.
Oil prices fell from giddy heights of $115 per barrel in 2014 to under $35 at the start of 2016. But the market has observed a turnaround since, and oil prices rose from an average $44 in 2016 to $54 in 2017 to nearly $70 last month. One of the main factors behind this was a deal struck by OPEC countries and other oil-producing countries, such as Russia, at the end of 2016 to throttle production. That deal has since been extended until the end of 2018.
Nevertheless, wooed by rising crude prices, shale producers, particularly in the US -- who are not party to the deal are ramping up output to cash in on the boom. And that, in turn, is jeopardising the delicate balance that the market has now reached. "In 2018, fast rising production in non-OPEC countries, led by the US, is likely to grow by more than demand," the IEA said.
In just three months to November, crude output in the US increased by a colossal 846,000 barrels per day, "and will soon overtake that of Saudi Arabia," the agency said. "By the end of this year, it might also overtake Russia to become the global leader."
Shale production is controversial, because in order to extract oil and gas, a high-pressure mixture of water, sand and chemicals is blasted deep underground to release hydrocarbons trapped between layers of rock.
And environmentalists argue that the process -- known as fracking, or hydraulic fracturing technology -- may contaminate ground water and even cause small earthquakes.
The IEA said that the current situation was "reminiscent of the first wave of US shale growth that, riding the tide of high oil prices in the early years of this decade, made big gains in terms of market share."
"Today, having cut costs dramatically, US producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth," the IEA said.
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