Crude at $60 a barrel would probably trigger a strong increase in North American oil output, the head of the International Energy Agency said, amid signs that OPEC members and Russia may be edging toward an agreement to limit production.
Benchmark Brent crude hit a one-year high above $53 a barrel on Monday when President Vladimir Putin said Russia was willing to work with the Organization of Petroleum Exporting Countries to stabilize the market. A deal could lift prices as high as $60 by the end of this year, Saudi Arabia’s Energy and Industry Minister Khalid Al-Falih said at the World Energy Congress in Istanbul.
If prices reach $60 and stay there, U.S. shale drillers could find it commercially viable to revive production at some mothballed wells and boost output by more than 1 million barrels a day by early 2018, according to Vienna-based consultant JBC Energy.
“We may well see, in a short period of time, strong production growth coming from North America and elsewhere,” IEA Executive Director Fatih Birol said Tuesday in a Bloomberg TV interview with Manus Cranny and Anna Edwards. “Prices around $60 would be sufficient.”
Brent slid from more than $115 a barrel in June 2014 to less than $28 in January this year. Prices tumbled after OPEC, led by Saudi Arabia, adopted a policy of pumping without limits to try to squeeze higher-cost production, including some U.S. shale output, from the market. U.S. crude production slumped to 8.43 million barrels a day in September from 9.42 million the previous year, according to IEA data.
Brent crude climbed to $53.14 a barrel on Monday as Russia’s Putin said the world’s largest energy exporter was ready to join OPEC in restraining oil production either with a freeze or a cut. The international pricing benchmark has gained almost 15 percent since OPEC agreed last month on the first supply curbs in eight years, and it was trading near $53 a barrel on Tuesday.
Some U.S. producers have already stepped up operations. The number of active oil-drilling rigs in the U.S. has climbed from 328 in early May to 428 last week, according to Baker Hughes Inc.
Bjarne Schieldrop, chief commodities analyst at SEB AB bank in Oslo, said he expects the number of active U.S. rigs to rise by about 10 per week until OPEC holds its next formal meeting on Nov. 30.
“As soon as OPEC moves into a position of trying to manage the price, it basically takes care of the downside risk,” Schieldrop said by phone. “The consequence is increased U.S. production.” If crude reaches and holds steady at $60, he said he expects U.S. output to rise by at least 500,000 barrels a day by the end of 2017.
U.S. shale drillers could add from 1 million to 1.5 million barrels a day within the next year and a half, if prices stay at that level, JBC Energy said in an emailed note.