【MACRO Insight】The shock wave of the oil price plunge - the challenges of US shale oil and the oppor

On the one hand, OPEC+ unexpectedly announced an increase in production, changing its previous attitude of defending oil prices. The cooling of geopolitical risks also exerted downward pressure on oil prices. The unstable long-term demand outlook of major demand countries has further exacerbated the market's pessimism. Data from the U.S. Commodity Futures Trading Commission (CFTC) showed that in the week ending March 4, hedge funds reduced their total long positions in WTI crude oil, and net long bets on Brent crude oil also recorded the largest drop since July last year.

On the other hand, the US shale oil industry faces challenges and opportunities against the backdrop of falling oil prices. US Energy Secretary Chris Wright is optimistic about the development prospects of the shale oil industry, believing that even if the oil price falls to $50 per barrel, the US shale oil industry can achieve increased production through innovation and improved efficiency. He pointed out that the price war between OPEC and the US shale oil industry in 2014 caused industry shocks, but also led to a significant reduction in production costs.

Today, he expects a similar dynamic to emerge in the market, with new supply leading to lower prices, companies reducing costs through innovation, and supply and demand rising and falling. However, some experts and industry analysts have different views. Andrew Gillick, managing director of energy research firm Enverus, said that if oil prices fall to $50, the number of rigs and drilling activities may decline, which will in turn affect the related production of the liquefied natural gas industry. Pulitzer Prize winner and energy historian Daniel Yergin also believes that if oil prices fall to $50 per barrel, the economic benefits of the shale oil industry will be challenged.

The pattern of cross-border oil trade is also changing. Jeff Currie, former head of global commodities research at Goldman Sachs, believes that cross-border oil trade has begun to decline after reaching a peak in 2017. In order to ensure energy security, countries are accelerating investment in renewable energy and nuclear energy. This trend has prompted countries to reduce their dependence on oil and gas imports and invest in more localized energy sources. The United States plays an important role in this process. Through technological advances during the shale revolution, the United States has become a net oil exporter and reduced its dependence on foreign supplies.

Wright supports the Trump administration's move to remove environmental regulations and abandon renewable energy, arguing that shifting investments from fossil fuels to renewable energy will increase energy prices and create energy poverty in developing countries. However, the Environmental Defense Fund (EDF) opposes this, arguing that the accumulation of greenhouse gases is causing natural disasters and causing great damage to the economy and humanity.

In the context of energy transformation, the impact of artificial intelligence on energy demand has become an important topic. Currie pointed out that artificial intelligence is the latest trend in driving energy demand. Although it accounts for an increasing proportion in the energy demand structure, its role in driving demand growth is still limited. As energy demand continues to grow, supply security has become a primary concern.

In addition, market concerns about further declines in oil prices are also growing. Morgan Stanley currently expects Brent crude oil to average $70 per barrel this year, $5 lower than its previous forecast. Goldman Sachs Group believes that oil prices are at risk of falling below the expected range of $70-85. Meanwhile, JPMorgan Chase took the lead in predicting that oil prices will fall to the $50 range at an energy conference in London, while Citigroup reiterated that oil prices will fall to $60.

Despite the bearish sentiment, there are factors that could limit further declines in oil prices. The Trump administration continues to threaten a maximum pressure policy on Iran that could cut Iranian oil flows. The U.S. plans to revoke Chevron's license to pump and sell Venezuelan crude, which could take 200,000 barrels per day off the market. In addition, the U.S. is preparing to force more companies to stop working in Venezuela, all of which could support oil prices.

In summary, under the background of falling oil prices and energy transformation, the US shale oil industry faces many challenges and opportunities such as technological innovation, policy adjustments and market dynamics. The reduction of cross-border oil trade and the increase of investment in renewable energy have prompted countries to re-examine their energy strategies to achieve the dual goals of energy security and sustainable development.