Oil Outlook ‘Bearish’ on Demand Drop, U.S. Shale Boom

Crude prices will probably drop, at least in the first half, amid rising U.S. shale-oil production and slowing economic growth, according to analysts.

“I’d stay moderately bearish from here,” Seth Kleinman, head of energy strategy at Citigroup Inc., said at the Bloomberg Oil Forum in London today. “Everything looks pretty weak,” he said, citing downward revisions to global demand growth forecasts by the International Energy Agency and the Organization of Petroleum Exporting Countries.

Global crude production will be “robust” this year as output rises in the U.S., Iraq and Kazakhstan, while demand growth may slow in consuming nations including China, he said.

Brent crude has fallen 6 percent this year on concern that Europe’s debt crisis will crimp global growth and damp oil consumption. The North Sea grade traded above $104 a barrel today on the ICE Futures Europe exchange in London.

“The macro risks are skewed to the downside,” David Fyfe, head of market research and analysis at Gunvor Group Ltd., said at the forum. The outlook for the second half is “more bullish,” said Fyfe, former head of the IEA’s oil industry and markets division.

U.S. output of oil and natural gas from shale deposits may rise at a slower rate through 2014 because the developments will require almost 3,000 rigs to drill as many as 65,000 wells, in order to keep up the current pace of expansion, according to an estimate from Sadad al-Husseini, founder of Husseini Energy, an independent consultant based in Dhahran, Saudi Arabia. That’s up from 1,874 rigs last year.

“Oil shales are great, but scaling it up, that’s a big order,” Husseini, who retired from Saudi Arabian Oil Co. in 2004, said at the forum.

OPEC will probably maintain its “passive” production policy because its biggest producers are satisfied with Brent crude prices in a range from $95 to $105 a barrel, he said. The group is scheduled to meet on May 31 in Vienna after maintaining a collective production target of 30 million barrels a day in December.

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