OPEC officials warn that underinvestment may lead to a price spike, but major oil producers do not have a strategy to meet longer-term demand growth.
Circumstances in the oil markets are expected to change, perhaps dramatically, early next decade. While U.S. production is expected to grow by a massive 2.5 Mbd in 2018-19, increases will thereafter slow considerably.
The divergence in shale forecasts stems from differences over macroeconomic assumptions, price expectations, the supply chain outlook, and productivity projections.
A series of recent deepwater discoveries has demonstrated that the offshore oil sector is beginning to rebound after years of subdued activity, despite increasing interest in onshore shale drilling.
Since the price downturn, companies have prioritized digital technologies, artificial intelligence, automation, robots and drones, connectivity, and data analytics in their budgets.
The remarkable shift in U.S. production should be celebrated, but it is also important to remember how much surrounding energy security has not changed. More than 90 percent of the transportation is fueled by petroleum, and consumers are still vulnerable to price swings and supply outages on the global market.
The weaker dollar has large implications for oil-exporting countries, particularly those in OPEC, as it cuts their purchasing power.
The oil majors are expected to post $80 billion in organic free cash flow in 2018, but spending is expected to be modest.
Smaller producers are eager to work with OPEC or join the cartel in an effort to boost their reputation, amplify their market clout, and gather research, information, and resources to attract investment.
The expected boom in shale output masks a list of underlying problems that confront the sector. Most companies are still not generating positive cash flow and remain highly dependent on borrowing from the debt markets.