Is Ukraine Panic Giving Shale A Chance To Shine?
As geopolitical uncertainty surrounding Ukraine sent commodity prices on a roller coaster ride this week, it could be time for U.S. shale oil to take center stage, some analysts told CNBC.
Prices of European and U.S. crude rose over $2 a barrel on Monday, after a bloodless invasion of Ukrainian peninsula Crimea by Russian troops sparked worries over disruptions to global energy markets. Meanwhile, U.K. gas for April delivery climbed 10 percent on Monday, the largest one-day gain since September 2011. On Tuesday, oil prices eased after President Vladimir Putin ordered troops that took part in military exercises in central and western Russia to return to base. But investors remained nervous.
Gaurav Sodhi, resources analyst at Intelligent Investor, told CNBC Asia’s Squawk Box, that volatility around Ukraine would cast a more favorable light on the U.S.’s growing energy independence.
“This will be a test of the new American shale prowess, a chance to prove supply can respond to higher prices. If they are the new Saudis, now is the time to prove it,” he said.
Meanwhile, David Lennox, resources analyst at Fat Prophets, told CNBC anxiety surrounding Ukraine’s predicament had underscored geopolitical stability in the U.S.
“Their investment in shale oil production is head and shoulders above the rest of the world, this situation gives the U.S. the opportunity to show their potential,” he added.
Shale oil – also known as kerogen oil – involves the extraction of oil and gas from shale rock through hydraulic fracking. Strong production numbers out of the U.S. have fueled hopes that the U.S. could one day become energy independent. The Energy Information Administration (EIA) – has forecast production in the continent to average 9.2 million barrels a day in 2015.
“The reason we have huge spikes in prices is because producers can’t quickly respond to changes in the price level and that’s not the case for shale. The claim of American shale producers is that they are a stabilizing force for global oil prices in a way that other countries can’t be,” added Sodhi.
If U.S. shale producers can respond more quickly to higher prices by hiking supply, this would be a positive development for the global energy markets worldwide, added Sodhi.
“It means these price spikes that happen from time to time are probably going to be less frequent,” he said.
Russia’s invasion of Ukraine has rattled energy analysts, given that Russia provides a quarter of Europe’s natural gas, half of which flows through Ukraine, a factor behind the spike in energy prices.
But Alejandro Barbajosa, oil markets specialist at Argus, told CNBC attention was already on the U.S. shale oil and gas market, and without this positive fundamental driver oil prices would have been much more volatile over recent days.
“Without shale the price of Brent would have spiked to $120 a barrel and U.S. crude would be up at $115,” he said.