Tumbling Oil Prices May Have Further to Fall
Oil prices, at 2013 lows, could continue to feel pressure, if the global economy turns out to be weaker than expected and production continues to grow in places like the U.S., Brazil and Iraq, according to James Burkhard, vice president and head of oil market research at IHS.
"We're going from three million barrels to four million barrels of spare OPEC productive capacity this year," he said, shortly after participating in a panel discussion at the annual IHS CERAWeek conference in Houston.
(Read More: Oil Supplies Are Key Topic at Annual CERA Week)
"As that hangs over the market, you might see prices weaken," he said.
Oil slumped Monday for a fifth session on concerns of slowing growth in China and a view that supplies are ample. Brent finished at $110.09 a barrel and West Texas Intermediate was at $90.12, after falling below $90 for the first time since December and about $8 lower in just a month.
Oil prices could be lower, but "right now it's offset by the anxiety of the stability of the Middle East," Burkhard said.
The U.S. is expected to produce 7.3 million barrels per day in 2013, up from 6.4 million per day in 2012, according to government data.
(Read More: US Oil and Gas Boom Takes Many by Surprise)
"This boom in the U.S. is being driven by tight oil. Most tight oil can be delivered at $80 or less," said Burkhard. Tight oil, or hard to get at reserves, have been accessed by a combination of hyrdaulic fracturing, or "fracking" and horizontal drilling.
Burkhard said that as U.S. oil competes head on with Brent, the international bench mark price should come down and could be in the $95 to $100 per barrel range.
A lot of U.S. oil is landlocked by ill matched logistics. As oil drillers wait for pipeline capacity, they have been shipping oil by rail car. Analysts expect Brent prices to compete with U.S. oil as more domestic oil moves to the coast, narrowing the spread.
Burkhard said too low an oil price would hurt U.S. drillers too, and that is one risk to the U.S. oil revival.
The U.S. has total technically recoverable resources equaling 223 billion barrels when all potential oil offshore, in Alaska, and in tight oil zones is taken into account, according to the Energy Information Administration.
Of the 223 billion barrels, there are estimated to be 49 billion in offshore drilling zones off the lower 48 states; there's another 24 billion in Alaska, but the tight oil resource, the newcomer, is expected to be 58 billion barrels.