US shale recovery, Iranian exports and oil demand outlook

In this interview with Cyba Audi from Asharq Business Bloomberg, Dr Carole Nakhle, CEO of Crystol Energy, discussed the recovery of US shale, the opening of the Jask oil export terminal in Iran and the unrests in the country’s oil rich province Khuzestan, as well as the outlook for oil demand.

Dr Nakhle argued that the industry’s outlook for US shale when the Covid-19 pandemic hit was largely cynical. This continues to be the view of some analysts since shale has not responded rapidly to increase in prices. However, Dr Nakhle explained:

1. Oil prices are where they are today because of OPEC+ cuts. The producers’ group is still sitting on more than 5 million barrels per day (Mb/d) of spare capacity, making any investors, especially shale, more cautious in terms of taking major investment decision based on current prices.
2. Shale producers are expected to make more than $30 billion of free cash flows this year – which is impressive for an industry that suffered major bankruptcies only a year ago.
3. To those who continue to refer to the peak of 13 Mb/d achieved in US oil production, the market today is smaller than pre-Covid19. Besides at 11.4 Mb/d, US production is the highest in the world.

Commenting on the opening of the Jask oil terminal in Iran, Dr Nakhle stated that this move has been planned for a while in the aim of decreasing the country’s reliance on the Strait of Hormuz. In the short term, the impact of this terminal will be minimal on global oil markets, and even in the medium term due to bottlenecks in production capacity. Even when sanctions were lifted back in 2016, Iran struggled to secure sufficient investments to increase its production capacity significantly. It is expected that the situation will persist if a deal is reached in the near future.

As for the unrests in Khuzestan province, Dr Nakhle said that they are not new. Actually the province is a good illustration of the ‘oil curse’: rich in oil but economically in dire conditions.

On the outlook of oil demand and economic recovery, according to Dr Nakhle, the delta variant is causing concerns; it can slow down the growth in many parts of the world but it is unlikely to reverse the recovery path.