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Shale boom in U.S. curbs impact of Iraq unrest, Saleri says

MARK SHENK

Washington, United States (Bloomberg) -- The United States shale boom, which has sent the nation’s output to a 28 year high, is curbing the impact of the Iraq crisis on the oil market, said Nansen Saleri, former head of reservoir management at Saudi Arabian Oil Co.

Prices would have climbed more this month if techniques such as hydraulic fracturing and horizontal drilling hadn’t bolstered United States crude output, said Saleri, who is now CEO of Quantum Reservoir Impact. West Texas Intermediate oil, the United States benchmark, has climbed $5 to $10 on supply anxiety, he said.

“Were it not for the increase in United States production, that’s gained close to 2 million barrels a day, we would see a $20 to $30 rise in prices,” Saleri said. “The surge in United States production is a hugely stabilizing factor.”

WTI for July delivery rose to $107.68 a barrel on the New York Mercantile Exchange on June 13, the highest level since September 19. Prices surged 4.1% last week, the most this year, as militants of the Islamic State in Iraq and the Levant seized Mosul, the largest northern city, on June 10. Futures increased 0.4%, to $106.43.

Brent for August settlement reached $115.71 a barrel on the ICE Futures Europe exchange, the highest level since September 6, and settled at $115.06. The European crude, which is used to price more than half of the world’s oil, is typically more sensitive to changes to the global supply and demand balance.

United States crude output rose 17,000 bpd to 8.477 million, the most since October 1986, Energy Information Administration data showed. Much of the gain has come from shale formations including the Bakken in North Dakota and the Eagle Ford in Texas.

“What’s happening in the United States is an indication of what the rest of the industry will be doing five to 10 years from now,” he said. “If you look at North Dakota and West Texas, you’re getting a preview of what will be happening globally a decade from now.”

The rise in United States production has made up for the disruptions of Libyan, Iranian and now Iraqi output, Christof Ruhl, the chief economist of BP, said.

“So far nothing has happened to production,” Ruhl said. Police near the Baiji refinery, the nation’s largest, said government forces are now in control after a battle with ISIL. Crude shipments from the south, where most production is located, may accelerate next month and Kurds are defending the Kirkuk oilfield in the north.

“The oil production centers of Iraq are relatively safe,” Saleri said. “There are two centers. One, responsible for about 75% of production, is in the Shia heartland of Basra province. The other 25% comes from the Kirkuk area, which is firmly under the control of the Kurds.”

Iraqi production rose 50,000 bpd to 3.3 million in May, according to a Bloomberg survey of oil companies, producers and analysts. Output was up 38% from the same month four years earlier, as investment poured into the country.

“Iraq has been the most promising new theater of oil production,” Saleri said.

06/20/2014

 

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