Shale billionaire points to overly optimistic US production growth

Speaking to Bloomberg, American entrepreneur and shale oil pioneer Harold Hamm has said that overly optimistic forecasts for US oil production growth are distorting oil prices.

Hamm pointed out that as oil prices fell in the second quarter, when oil production recovered in Libya and Nigeria, US shale producers shifted their focus from unfettered growth to return on investment. He suggests that forecasters failed to realize the drop in output as shale operators slashed capital investment.

To put this into context, the US Department of Energy’s most recent forecast has US oil production reaching 9.82 million barrels a day in December this year. In contrast, the Domestic Energy Producers Alliance, which is chaired by Hamm and represents domestic US onshore oil and gas producers, has come to a much lower prediction of 9.35 million barrels a day.

Hamm predicts that once the market realizes this forecasting error, oil prices could rise to around $60 a barrel, at which point US shale producers could respond by ramping up production.

The larger issue here is that US shale could usurp OPEC as the swing oil producer, with oil markets being balanced around the economics of US shale production. This is evident in the recent approach of ExxonMobil, which also sells a range of industrial lubricants through Mobil distributors. The company shifted its investment focus towards US shale drilling this year in order to establish long-term projects where production can be switched on or off depending on current oil prices.