Salient to Investors:
The US is almost free of imported energy dependence and positioned to overtake Saudi Arabia as the world’s No. 1 producer of oil, whether oil is $60 or $120. The IEA said America’s 6.8 million barrels a day in November was 30 percent less than Saudi Arabia’s 9.7 million, the International Energy Agency says the U.S. will be bigger by 2020.
Eugen Weinberg at Commerzbank said U.S. oil is the biggest development over the last 40 years, and US shale is the game changer – all OPEC nations are concerned.
Ed Morse at Citigroup said oil companies will boost production even if oil dropped 30 percent, as new technologies extract crude from shale formations. Morse said US producers break even at $72 to $75 a barrel, but will keep drilling new shale wells at $60 because they’ve already hedged future output.
Samuel Ciszuk at KBC Energy Economics said Saudi Arabia could not afford a decline of 25 percent due to $630 billion of social welfare and building projects. He says the Saudis are neither willing nor able to take prices low enough to cut off US shale developments, since they need oil in the $80s to balance their budget through 2014.
Leo Drollas at the Centre for Global Energy Studies said US shale oil producers can’t lose, while the Saudis need to balance their budget at $95 oil. Citigroup said that Saudi Arabia will need all its own oil by 2032, leaving nothing to export if its population continues to grow at 2.9 percent a year – it uses 25 percent of its fuel production domestically, more per capita than any other industrialized nation.
Mike Wittner at Societe Generale said the US will never be the new Saudi Arabia because the Saudis can increase production whenever they want and cut when they need to, things the US will never do.
The last time the U.S. rivaled Saudi Arabia proved a disaster for America’s oil industry and for the kingdom – WTI plunged to $10 a barrel in March 1986, and US output declined for 21 of the next 22 years.
Francisco Blanch at Bank of America Merrill Lynch said the US may be producing too much oil and WTI may drop as low as $50 a barrel within the next 2 years unless policy makers scrap a law limiting exports. Blanch said WTI is their big short for 2013. However, the US natural gas market shows that declining prices don’t guarantee reduced supply.
The median analysts expects WTI to rise 15 percent through 2015, to $100 a barrel, while Brent may gain less than 1 percent, to $110. U.S. stockpiles have grown 13 percent in 2012.