Industrial Info Resources' Texas-based vice president of research Chris Paschall told Energy News at the firm's 2017 Australasian Market Outlook in Perth yesterday during AOG that Permian producers are less "trigger happy" than some outside the US may think, even with oil having stabilised above $US50/bbl recently.
Paschall said his discussions with Permian Basin oil marketers at a US oil conference last month about producers' threshold revealed that "they want to see the $50-55/bbl really come to fruition and have some stabilisation over about six months".
"We are obviously seeing the rig count in the Permian Basin increase; there will be some problems in moving that product as we produce more oil there, but a lot of the producers are bit trigger shy at the moment," he said.
"When you look at the amount of oil that could be coming out of the market, it would be the back end of the second half of 2017 before you start to see that supply-demand start to re-shape, and probably a bit into 2018."
Total CEO Patrick Pouyenne appeared to back that analysis yesterday when he said OPEC and Russia needed to prolong their production cut deal beyond June so global inventory enough to keep a lid on prices.
"If they want really to have an impact on the market, which means to have the inventories going down because inventories are quite high, it will have to be extended beyond May" when OPEC is due to meet next, Pouyanne told Bloomberg.
"I'm convinced that they will do it."
Data platform 1Derrick revealed this week that deals in the Permian Basin accounted for 48%, or $US24.8 billion ($A32.24 billion), of total US transaction value last year and an astonishing 77% of the $18.5 billion in deals announced in the first 45 days of 2017.
Although the buyers have been almost exclusively North America based firms, 1Derrick's analysis suggests that the US unconventional M&A market could be on the cusp of a second wave of international investments.
1Derrick chief operating officer Mangesh Hirve said Chevron Corporation was boosting Permian Basin investment by 45% despite an overall 11% reduction in total investment, while Occidental Petroleum was doubling its spending in the play from $600 million to $1-1.4 billion.
ExxonMobil made its largest acquisition since it bought $1.6 billion worth of Bakken Shale assets from Denbury Resources in 2012 with its $5.6 billion purchase of Delaware Basin properties in January.
While a Citi analyst recently tipped $70/bbl oil by the end of the year, Paschall said plenty needed to occur before that happened, and did not agree with the forecast.
In fact, Paschall said the crowded trade at the moment meant that any cracks in OPEC's commitment to cut production could trigger more volatility, which could see the world revisit $40/bbl in the short-term.
"So there could be a bump in the road over the next 2-3 months, but after that will firm and we'll start to see demand really become what we need to support those prices," he said.
For now, Paschall is confident that demand will start exceeding supply by early 2018, though he believes the $10/bbl surge since OPEC's November agreement was not demand related, and said OECD stockpiles give some firmness for the pricing strategy.
Yet demand is increasing.
In 2015 demand increased by 1.4MMbop dand last year it rose to 1.6MMbopd, but the International Energy Agency then revised its 2017 forecasts to 2.133MMbopd in growth.
"Last November was the fourth consecutive month of a draw on the stockpiles. In July we hit a peak of 3.1 billion barrels of global inventory, and while that's pulled back there is still 311MMbbl above the five-year average right now," Paschall said.
"So we need to see some of that slack come out before we're really in the clear, which should happen in the second half of 2017."
