Washington (Platts)--4Feb2015/245 pm EST/1945 GMT

Planned capital spending cuts by oil companies this year will likely cause a dip in production within six months, which could drive shale drillers to ramp up operations and create the risk of another plunge in prices, the head of the US Energy Information Administration said Wednesday.

"Are we going to see cyclical behavior here?" said Sieminski during a National Association of State Energy Officials conference. "We might find that prices go down, we kind of rebalance, but shale can be drilled quickly and can come on quickly, and it might actually lead to another problem then."

Sieminski said this was why Saudi Arabia has been reluctant to change direction on oil production: Whatever oil they take off the world market will be met quickly by a corresponding ramp up of US shale production.

In recent earning calls, oil companies have announced capital spending cuts of 25%-30% in response to the oil price slump, which could create a boost in prices, Sieminski said.

"The company's seem to be reacting very quickly to try and conserve cash in this atmosphere and maybe that might sort things out a little bit," he said.

EIA is forecasting WTI crude oil to average $54.58/b in 2015 and $71/b in 2016 and Brent to average $57.58/b in 2015 and $75/b in 2016, according to the agency's January Short-Term Energy Outlook. In its August outlook, EIA had forecast WTI to average $96.08/b in 2015 and Brent to average $105/b in 2015.

While Sieminski said that price both below $50/b and above $100/b were likely "not sustainable," he said price forecasting is inherently difficult as market fundamentals constantly shift.

Sieminski said the recent price collapse was caused by a variety of factors, including OPEC's decision to maintain output, unexpected production from Libya, 1.1 million b/d of growth from US shale oil, weak economic data from China and an unexpected steady supply from Iraq.

He said, however, that he expects a number of factors could cause prices to climb again, including labor strikes in Venezuela, unrest in Iraq and Nigeria, and the potential for new sanctions on Iran.

Factors which could push prices further down including a continued slowdown in GDP in Europe, Japan and China, a full return of production in Libya or a slowdown in US demand.

--Brian Scheid, brian.scheid@platts.com
--Edited by Derek Sands, derek.sands@platts.com

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