David Messler, writing for oil.com, said that the perception that the global economic recovery has begun, and excess shale production will be reduced, is actually changing the market’s perception even now. Crude prices have rallied dramatically in the last few days.
The rate of new drilling is now far below the decline rate for shale, about 30,000 barrels per day (bpd), or 900,000 a month. When you combine that with crude inventories, which are now about 25 million bbls above the typical peak range and will be worked down rapidly over a few months as shale production is shut-in and summer driving picks up.
“Accordingly, we are estimating a year-end price of $45-50 dollars for WTI and a year-end U.S. shale production exit of 4-5 million bpd. When combined with the curtailments coming from Saudi Arabia, Russia and other countries we estimate that as much as 20 million Bpd will have been removed from the world market. These curtailments put us in rough balance with global demand at 75-80 mm BOPD, and any shortfall from there will quickly put us into deficit,” Messler said.