Growth in US oil output to remain elusive – ANZ

US shale oil production is back in focus as arctic weather across the US caused power outages and frozen wells and pipes. This temporary crisis doesn’t hide the fact that, for US shale oil output, growth looks elusive. Strategists at ANZ bank think output is likely to sit below pre-pandemic levels this year, which should make OPEC more comfortable about easing restrictions when it meets in early March.

Key quotes

“Extreme cold weather has shocked the eastern and central states of the US. The consequent spike in demand for power and the freezing over of power infrastructure have caused blackouts across Texas, in particular. After freeze offs, it usually takes a couple days of above freezing temperatures to return to production after which damage to valves, compressors and pipes will need repair. So, even as temperatures rise, operators will be dealing with intermittent power outages that will slow the recovery. US shale oil output could take up to a week to return to normal.”

“Despite the expectation of gains in oil prices as economic growth recovers, government stimulus continues and vaccines slow the pandemic, we don’t expect US oil companies to start chasing volume growth just yet. In fact, we expect US output to remain below pre-pandemic levels and end this year at 12mb/d.”

“OPEC meets next in early March to assess the impact of the cuts on the market, but producers have already hinted at easing the output cuts. OPEC treads a fine line between supporting prices through production cuts and incentivising non-OPEC supply. US shale oil, one such non-OPEC source, has been quick to respond, but we think OPEC will be comfortable easing restrictions at its next meeting because growth in the US shale oil industry poses little threat.”