Energy Commodities Price Watch: Shale Gas Revolution Seen Halving Oil Price

on Jul 1, 2013
Listen, Monday, July 1st: The oil price could halve within the next decade because of a shale gas revolution, The Times has reported, citing industry experts. The new forecast comes after last week a government report revealed that the UK shale gas reserves were far bigger than previously thought.

**Shale Gas Could Slash Oil Price in Half**
The Times today quoted John Llewellyn, the former head of international forecasting at the Organisation for Economic Co-operation and Development (OECD), as noting that most oil price forecasts had radically underestimated the impact of new extraction techniques for shale gas and oil. In a report written with Puma Energy, the energy business owned by commodity trader Trafigura and oil explorer Sonangol, Dr Llewellyn said that a shift taking place in oil markets between now and 2020 could reverse the change which took place in the 1970s, when the price doubled and the US became a large net importer of oil.

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Last week, the British Geological Survey (BGS) revealed that the Bowland Shale in the north of England contained about 1,300 trillion cubic feet of gas. While it still needs to be established how much of the UK shale gas is commercially recoverable, the industry believes that it might be technically and financially feasible to extract at least 10 percent, meaning that 1,300 trillion cubic feet would be enough to supply Britain for at least 43 years.

The Times highlighted that the analysis was disputed by other industry experts. It quoted Tony Hayward, the former chief executive of BP now running Genel Energy, as pointing out that if oil prices fell drastically, some shale production would not be economic, which would push prices up again.
**Brent, WTI Price Update**
West Texas Intermediate (WTI) has gained ground today, with futures for August delivery adding 95 cents to trade at $97.51 a barrel on the NYMEX as of 13:10 BST. The WTI price found support in concerns that protests against Egypt’s President Mohamed Mursi could spread to other nations in the Middle East and affect oil supplies from the region.

“Today’s rise came as a bit of a geopolitical lift,” noted Ole Hansen, the head of commodity strategy at Saxo Bank A/S, as quoted by Bloomberg. “The main drivers now are geopolitics and the expected build-up in demand in the third quarter.”
The Brent price also advanced, with Brent crude for settlement in August trading 87 cents higher at $103.03 a barrel on the ICE Futures Europe exchange. The European benchmark received a boost from a rise in Markit Economics’ Eurozone Purchasing Managers’ Index (PMI) to a 16-month high of 48.8 in June, up from May’s 48.3.

Reuters quoted Carsten Fritsch, a senior oil analyst at Commerzbank, as pointing out that almost the entire commodities sector was up on the manufacturing figures.
**Natural Gas Price Edges Up**
Natural gas futures for August delivery have advanced today, and were seen trading 0.73 percent up at $3.59 per million British thermal units on the NYMEX as of 09:41 ET.
!m[WTI Price Gains on Egypt Protests, Brent Price Supported by Manufacturing Data](/uploads/story/3560/thumbs/pic1_inline.jpg)
Despite the positive start to the month, the natural gas price is expected to come under pressure due to forecasts of normal weather in the eastern US by mid-July. The forecasts are expected to reduce gas demand from power plants which would not have to generate extra electricity for running air conditioners.
Bloomberg quoted Matt Rogers, president of Commodity Weather Group LLC, as forecasting that the US east of the Mississippi River, as well as the Southwest, would have mostly normal weather July 11 to 15. New England and eastern Canada are forecast to be three to five degrees Fahrenheit (1.6 to 2.8 Celsius) warmer than normal.
The forecast “is fairly benign demand-wise, but we also see some marginally hotter weather in the Plains, western Midwest, and north Texas toward the end of the period,” Bloomberg quoted Rogers as saying in a note to clients.
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