Oil markets already priced in further shale ramp up - ECB paper

FRANKFURT (Reuters) - Oil markets have priced in nearly all the potential impact of the shale oil boom in the years ahead and energy-importing countries will only record a relatively small boost to their economies from low crude prices, a study published by the European Central Bank showed. The price impact of any further increase in shale supply is seen at less than plus or minus $4 per barrel, primarily because Saudi Arabia's production could fall by 1 million barrels per day (boepd) between 2014 and 2018, the study's authors said on Thursday in a paper that does not represent the ECB's formal opinion. Brent crude prices more than halved over the past 16 months as output, particularly shale oil in the U.S., soared and demand failed to grow as fast as expected. World crude supplies grew to 96.3 million boepd in the second quarter of this year, a 6 percent rise in less than three years, International Energy Agency data showed. That is a rapid increase for a sector where some fields need a decade to go into production and returns are made in decades. "Our results suggest that most of the shale oil revolution is already priced in, and even considerable changes in the scale of the production will have only a small effect on prices," Cristiana Belu Mănescu and Galo Nuño, the paper's authors, said. "According to the model, in response to lower oil prices and a reduced oil market share, Saudi Arabia curbs its investment in new production capacity which leads to a deterioration in its spare capacity position," they said. Importing countries will benefit but the gains will be muted. Energy-producing countries will curb consumption and their growing sovereign wealth funds, which invest globally, may be used to cushion the fall in prices. Indeed, Norway announced on Wednesday that it would make its first net withdrawal from its $845 billion (£552 billion) sovereign wealth next year as the economy suffers from lower oil tax income, falling energy investments and layoffs. Consequently, the cumulative impact on the gross domestic product of oil importers will be just 0.2 percent between 2010 and 2018, the paper's authors said. "It should be stressed that alternative assumptions about the structure of financial markets or the consumption-leisure elasticities may increase the impact on GDP, so that this result should be read as a lower bound of the true impact in the real world," the authors said. (Changes dateline; no change in text.) (Reporting by Balazs Koranyi, editing by Larry King)