Oil prices remain in freefall and as the spread of the coronavirus triggers further panic in the markets, and this is in turn is squeezing U.S. shale companies.
At the time of writing Monday, Brent crude was down more than 8% and U.S. West Texas Intermediate crude was falling 5.23% to $29.97.
Analyst: Shale Production To Decline
Bjarne Schieldrop, the chief commodities analyst at SEB, said he expects U.S. shale oil production to decline by 1 million barrels a daily in the next 12 months.
“Supply and demand are going in opposite directions in a way we have hardly seen before, with OPEC increasing production strongly at the same time as global demand takes a deep dive. The inventory build will be large in the short term and depress the market in the medium term."
Demand is declining sharply due to the unfolding coronavirus crisis, the analyst said.
“Oil demand in China indicatively declined by 30% in February 2020 but China dealt with the outbreak aggressively and swiftly with less than 0.01% of the population becoming infected."
Although the Chinese economy is now rebounding, SEB said it expects oil global demand to decline further in the second quarter of 2020 to as low as 95.2m bl/day before rebounding in the second half of 2020.
OPEC Price War
At a March 6 Organization of the Petroleum Exporting Countries meeting, Russia refused to sign up to additional cuts proposed by OPEC oil producers. Saudi Arabia decided to increase its oil production and launched an oil price war.
“OPEC has been unable to find common ground, with all producers switching from production cuts to increases. Non-OPEC supply is set to increase 0.6m bl/day from Q1 2020 to Q2 2020,” Schieldrop said.
OPEC’s production is set to increase from 27.9m bl/day in February 2020 to at least 30.5m bl/day in the second quarter, the analyst said.
A last-minute deal between Russia and OPEC before the expiry of the current cuts at the end of March is very unlikely, in Schieldrop's view.
“Russia has probably firmly decided that now is the time to pull away the rug from under the feet of the shale oil producers, so now is the time for the second shale oil reset."