Analysts think the oil cut deal could bring US shale back from the brink

LONDON - Analysts are speculating about what's next for US shale producers on Monday morning, after a deal late on Saturday between OPEC and non-OPEC countries to cut production.

The deal has sent the price of oil skyrocketing, as constricted supply should boost the price. Oil stocks are also charging on Monday.

However, the deal does not include the US and analysts are speculating whether US shale producers step into the breach and help keep a lid on prices.

FXTM's chief market strategist Hussein Sayed says in an email on Monday morning: "Now with 1.758 million barrels expected to be slashed out of the market, or about 2% of the global oil supply starting January 1, oil prices have more room to rally with Brent potentially crossing above $60 in the next couple of weeks.

"The market's focus will then switch to compliance with the agreement, and US shale producers who are not a part of the agreement. US rig counts rose by 21 last week to 498, the biggest increase since mid-2015, and the questions now becomes how fast will US shale ramp up production and at what level is it possible to cap the current rally?"

OPEC began pumping out oil in 2014 as a tactic to try and put the US shale industry out of business. It had a dramatic effect, reducing the number of US oil rigs from just over 1,600 to around 500. But the industry is down, not out. The number of oil rigs in the US jumped by the most since July 2015 in December.

Fawad Razaqzada, a market analyst at Forex.com, says in an email on Monday morning: "It is very likely that US shale producers will take advantage of this opportunity to ramp up their crude output once again but this will be a worry for another day."

But Tony Cross, a market analyst at TopTradr, is more cautious. He says in an email: "On the basis that legislation has been changed to permit exporting of US oil, the potential upside would seem to be limited - although many oil producing nations will certainly be comfortable with crude closing out the year around the $55 level."

Goldman Sachs isn't upgrading its long-term oil price forecasts because of US shale, saying in a note on Sunday: "We expect that a greater producer response, especially in the US, would eventually bring prices back to $55/bbl."

Michael Hewson, chief market analyst at CMC Markets, says in an email on Monday morning: "With US prices also following suit the big question now is whether the shale producers start to bring dormant production capability back on line."