Fresh US shale oil supply would take months, even with high prices: Rystad

Quantum Commodity Intelligence – A meaningful increase in oil supply from US shale would take nine months, according to analysts at Rystad Energy, as loss-making financial hedges deter increases in production for some, fresh supply relies on completing existing wells and drillers focus on dividend payouts.

Oil prices experienced volatility this week amid a fallout at OPEC+ talks and rising demand for gasoline in the US, with futures nearly hitting a high of $78/b on Monday and sparking speculation that higher prices would bring a flood of US shale oil to the market.

While prices have since eased $2/b, Rystad Energy cast doubt on the ability and incentive for shale producers to turn on the taps immediately.

Around 40% of shale output this year is hedged at lower price levels than $70/b, said Rystad, meaning those operators book a financial loss that offsets gains of physical sales.

And for those that have not hedged, many are focusing on paying dividends after 2019's brutal year, leaving fresh supply from US shale in doubt and increased supply relies on finishing drilled but uncompleted wells.

"Even if the US shale industry wanted to produce more, the time required from a price signal to a significant production impact is at least nine months," said Artem Abramov, head of shale research at Rystad Energy in a statement.

That, he said, was because of the "the time it takes to make an investment decision, the months needed from spud to frac end, plus the last stage from frac end to peak production."

US crude oil output was just under 11.5 million bpd in June, and, according to the London-based consultants, is only forecast to grow by 60,000 bpd to 11.51 million bpd in July while flatlining in August.

The consultants estimate that even with prices at these levels, production will ease in September and October and only see production reaching 12 million bpd in October 2022.

That comes as demand is expected to rise sharply by 3-4 million bpd over the same period.

"Despite the continuous growth, US monthly output in 2022-2023 is not expected to match the record 12.9 million bpd achieved in 2019, as WTI prices are not forecast to remain at the current high levels.

"There is, however, some upside potential if volatility continues, and if the currently robust WTI price environment pushes into next year, our forecast could be subject to revisions," the consultants said.