US shale, slack growth stopping global crude prices from rising

US Opec crude imports versus its own crude production have been showing a wider but sustainable divergence in the May 2011-November 2011 period up to November 2014. Imports by US have dwindled below the 30,00,000 barrels a day while its home production topped 90,00,000 b/d.

At a presentation to a select media, Platts, a leading information provider on energy, metals and petrochemicals, said there were new trade patterns emerging for West African crude where light sweet crude has been displaced from traditional markets. Brazil and India are key buyers with India attributing 15-20% of Nigeria's exports every month.

One of the key factors has been the abundance of light sweet crude. According to market players, India stands to gain either way from falling global crude prices as subsidies have come down dramatically and in terms of foreign exchange the gains are anywhere upwards of $40 billion annually. Platts's associate editor for Europe and Africa crude, Eklavya Gupte said that there is problem of storage in WAF crude.

Even though Opec continues to pump more oil without any cut in production there has been disagreement within Opec (Organization of the petroleum exporting countries) countries, said Vandana Hari, Asia's editorial director at Platts. Opec currently has 12 member countries -- Iran, Iraq, Kuwait, Saudi Arabia Venezuela, Qatar, Libya, the United Arab Emirates, Algeria, Nigeria and Angola.

India continues to be a key beneficiary of falling crude while on the other

"The low prices are there to stay longer," Hari said adding that the global crude getting back to over $105 a barrel was distant.

However, she said the falling prices do have severe ramifications on the economic growth as demand for oil was estimated on growth.

The forecast was an average surge of 1.5 million barrels a day (mbd) by non-Opec suppliers in June 2014 against a global growth projection of 1.25 mbd. By February this year, the non-Opec supply was revised upward to 2.03 mbd but growth estimate was lowered to less than a million barrels at 820,000 barrels per day

"Oil demand projections follow economic outlook and when IMF lowered GDP outlook in January this year to 3.5% from 3.8%, with a likelihood of further downward revision, price recovery has slowed down," she said.

Commenting on shale crude, 40% of US oil rigs or over 600 rigs idled between October 2014 and February 2015, but the production outlook was stable.

When asked if Opec price war could lead to a wipe out of shale crude rigs, she said, most rigs in the US were privately-owned and the laws permit ownership of oil found beneath the land purchased.

"Hence, even if they found global oil price hitting businesses they were in a commanding position of shutting them till prices favoured re-starting."

US output is seen rising to 9.3 mbd in 2015 from 8.6 mbd in 2014.

US does not export shale crude and the produce is for domestic consumption, said Gupte but when US shale does hit global markets, equations could change, he said.

However, there are uncertainties stemming from US rate hikes, the euro zone's one trillion euro quantitative easing "and the jihadi movements across MENA", Hari said. On the supply elasticity, there were countries like Russia and Brazil among others that could influence, monetary policies and refining over capacities. On the demand side, factors like US readjustments in shale, gasoline demand, the Chinese demand besides stockpiling and the falling project spending on engineering and processes are variables of price moves. “ But prices are not expected to move steeply upwards for a while,” she added.