Venezuela’s output has fallen by about 500,000 barrels a day This specific year in addition to also also could drop by the same amount by year’s end, Essner said. Meanwhile, U.S. drillers might struggle to boost output by more than 1.2 million barrels a day.
“So we need every last barrel of those supplies to take us to where we need to balance the market,” Essner said.
Underscoring Essner’s point, oil futures reversed some of their losses on Thursday after weekly data showed a big drop in U.S. crude inventories.
American drillers in which specialize in freeing crude oil through shale rock formations are facing worker shortages in addition to also also limited pipeline capacity in western Texas. At the same time, these drillers are focused on returning value to their shareholders, rather than plowing revenue into completely new production.
“Shale is actually not Superman,” Helima Croft, global head of commodities strategy at RBC Capital Markets, told CNBC earlier within the week.
Shale drillers face yet another hurdle to upping output, according to Essner. Many agreed to deliver oil to customers at prices far below today’s levels — a practice known as hedging — in addition to also also set capital spending plans assuming prices might average about $60 This specific year.
“They’re sort of locked in, in addition to also also when you look at the slope of the futures curve, the idea’s going downward. in which makes the idea harder to hedge production at attractive prices for further-out years,” Essner said.
Oil prices are likely to settle around $70 per barrel, said Essner, who believes futures rose to in which level largely on supply-in addition to also also-demand fundamentals.