Two developments dominated the global oil scenario: the news of compliance with cuts in production by OPEC and non-OPEC members, and the surge in production of shale oil as a result of prices remaining at above $ 50/barrel in both the WTI and Brent indices: through the last fortnight, Brent was above $ 55, while WTI was above $ 50; on 14 February, Brent was $ 56.14 while WTI was $ 53.38. A report from the IEA said that compliance with cuts to the extent of 90% had been achieved by OPEC and non-OPEC members, with countries like Saudi Arabia cutting even more than was required.
These prices have encouraged prospects of significant increases in shale oil production: US production has risen by 6.3% since July 2016 to nearly 9 mbd, and is expected to rise by a further 290,000 b/d in 2017. The Energy Information Administration (EIA) of the US department of energy has projected that in 2018 US production will be 9.53 mbd, the highest production since 1970. A study by energy consultants Wood Mackenzie has shown that breakeven prices of US shale oil wells has now become $ 70/barrel, as against $ 80-100 a few years ago.
While IEA has indicated that the global oil market could balance next year due to increase in demand, both Iran and Qatar have suggested OPEC and non-OPEC members may need to extend production cuts into the second half of 2016.
February 17, 2017