Oil prices rose yesterday, with benchmark Brent crude trading at 50.92 dollars a barrel after a fall in U.S. inventories and a bigger-than-expected cut in Saudi supplies to Asia helped tightened the market.
But if rapid production growth in USA shale fields keeps prices in the US$50 to US$60 range, producers will need to reduce costs by another 20 to 25 per cent, the analysts estimate.
Excluding Alaska and Hawaii, it said output from the other 48 states would expand by 390,000 bpd from May 2017 to December 2017 assuming a US light crude price of $50.
In a monthly report, the Organization of the Petroleum Exporting Countries said outside producers would boost supply by 950,000 barrels per day (bpd) this year, up from 580,000 bpd expected previously.
OPEC and other producers meet on May 25 to decide whether to extend cuts.
Last December, Jazz wrote about OPEC's decision to cut production for six months in an attempt to drive oil price up.
OPEC will also be mindful that USA producers will likely expand output and take more market share away from the cartel the longer it curbs production, said Tom Pugh, a commodities economist at Capital Economics.
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Meanwhile, Iraq and Algeria reportedly said Thursday they were in favor of extending the crude output cut deal. Consequently, oil prices have slumped below the level prevalent before the OPEC agreement in late November.
Nearly five months later, US production is rising faster than anyone predicted and his plan has been shredded.
Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said the market is not just looking at U.S. production figures and U.S. inventory data.
A weekly report by Baker Hughes (BHI.N) monitoring USA rigs drilling for new production is due on Friday. US crude stockpiles have started to drop and the amount of oil in floating storage is contracting. Now, OPEC is revising upwards its estimates of how quickly supplies will grow outside of its membership this year by a whopping 64 percent.
"Egypt and Turkmenistan are expected to attend the conference for the first time", said one of the sources, declining to be identified.
Increasingly, the oil market believes the real battle between OPEC and Russian Federation, on one side, and shale, on the other, will take place in 2018, when an increasing number of observers predict US production will flood the market as it did in 2014.