Tal International Group, Inc. (TAL), Canadian Natural Resource Ltd (USA) (CNQ): The Most Important Consequence of the U.S. Shale Oil Boom

Over the past few years, the U.S. has seen a veritable renaissance in oil production. Sustained high oil prices since 2008 and radical improvements in drilling technology have allowed energy companies to unlock a previously inaccessible bounty of shale oil, trapped beneath rock formations several thousands of feet deep.

As a result of this so-called shale boom, U.S. crude oil production is currently at a multi-decade high, while total oil imports last year fell to their lowest level since 1997. Industries ranging from chemical manufacturing to oil refining have all benefited from the cheap domestic energy provided by shale oil and gas.

But the boom’s impact isn’t just confined to the nation’s borders. In fact, it has far-reaching consequences for the entire global economy, energy security, and — perhaps most importantly — oil prices. Let’s take a closer look at why some experts are arguing that the shale boom could lead to lower oil prices by the close of this decade.

Shale’s impact on oil prices
According to the International Energy Agency’s recently released five-year outlook, the staggering growth in U.S. crude oil output has practically removed the threat of global supply shortages, leading to a more balanced market — a development few would have predicted just five years ago. This has one resounding implication: It drastically reduces the threat of a sustained spike in oil prices.

Indeed, PIMCO portfolio managers Greg Sharenow and Mihir Worah have even characterized the growth in U.S. shale oil production as “the major factor in rebalancing future expectations of supply and demand,” even adding that it could have “the most significant impact on oil prices of any supply event in recent decades.”

So just how severe will shale’s impact on oil prices be? According to a recent report by PwC, the expected increase in shale oil production could reduce prices to as low as $80 in 2035, meaning that oil would be cheaper two decades from now than it is today — a truly bewildering thought. Citigroup Inc (NYSE:C) has offered an even more bearish outlook, forecasting that oil prices are “likely to hover within a range of $80-90/bbl” by as early as 2020.

Winner and losers
If these pessimistic projections are borne out over the next several years and oil prices do fall below $90 a barrel, the impact would be distributed extremely unevenly across the world.

For instance, large oil-importing countries would stand to benefit handsomely, since lower oil prices would help them reduce their oil import bills and improve their current account balances. PwC reckons India and Japan could see a boost to GDP of around 4%-7% by 2035 if their oil price forecast proves correct, while the U.S., the eurozone, China, and the U.K. could see gains of 2%-5% in economic output.