It's hard to think of a time when so many different forces are converging on the world energy industry from so many different directions. And they all, along with the changes they may usher in, will be part of the discussion when we convene at CERAWeek by IHS Markit this week in Houston.
Oil prices have stabilized in a $50 to $60 range since the OPEC/non-OPEC deal last November averted a dive toward $40 or below. It was an historic agreement because, for the first time, non-OPEC countries, galvanized by Russia, signed onto the cutbacks. And it is striking because of the 90 percent-plus compliance by OPEC countries, far higher than in past agreements. At CERAWeek the Saudi, Russian and United Arab Emirates oil ministers, along with the OPEC Secretary General, will be sharing their perspectives on what's ahead for the oil-exporting countries.
The agreement's success is also stimulating the rebound in shale oil production in the United States. When the global industry meets in Houston this time, prices will be 75 percent higher than they were at CERAWeek 2016, and that increase is translating into more spending and more rigs put back into operation. What's happening is well short of the irrational exuberance that preceded the 2014 price collapse.
But operators are much more efficient than they were then and can do a lot more with less. IHS Markit estimates that a dollar spent today will produce two and a half times more oil than it would have in 2014. That is a very big efficiency improvement. Of course, a major question is to what degree will costs of oil services, now beaten down into the ground, rise.
Overall, we expect U.S. oil production, driven by shale, will rise by more than half a million barrels per day this year, and it could be well more, depending on price.
For the major oil companies, a key question will continue to be managing costs as they cautiously begin to step up spending. It is striking to see the shift among many of the companies toward U.S. shale, with a continuing pause on developing the new multibillion-dollar mega-projects that were characteristic of the previous decade.