Shale production is rising even as OPEC and friends cut output

Major oil producers have started cutting output but the rally in crude prices could be capped as U.S. shale companies boost production in the latter half of the year, according to JPMorgan.

"Towards the second half of this year, U.S. shale starts to kick in," said Scott Darling, the investment bank's Asia-Pacific oil and gas research head.

U.S. West Texas Intermediate crude oil futures were moving around $53 a barrel and Brent crude futures at around $56 a barrel on Thursday morning in Asia, up from sub-$50-a-barrel levels before the OPEC production cuts were announced.

Late last year, OPEC and major non-OPEC countries announced join production cuts of around 1.8 million barrels a day starting this year.


Pump jacks and wells on the Monterey Shale formation in California
David McNew / Stringer | Getty Images News
Pump jacks and wells on the Monterey Shale formation in California

Darling said sustained crude prices of $50 a barrel in the second half of 2017 will aid U.S. shale growth of 200,000 barrels a day while the jump will be at 600,000 barrels a day if crude prices move up to $60 a barrel. Any further rise may even see shale production growth breaching 1 million barrels a day, he added.

Rival Goldman Sachs noted Thursday U.S. shale activity has already picked up strongly, with the horizontal oil rig count at a 13-month high, and it expect U.S. shale producers to continue to ramp up activity at current price levels.

JPMorgan's forecast for Brent crude averages $58 a barrel in 2017 with prices sliding to $55 in the fourth quarter as shale production starts to impact the market.

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