Op-Ed: Will OPEC Production Cuts Fail?
A barrel of oil lingers priced in the low $50s and the global supply and demand ratio remains out of whack. Does that mean failure for OPEC’s six-month experiment to stabilize global markets and increase the price of oil?
Not according to the experts.
When markets closed April 21, the price of WTI had dropped below $50 to $49.62 per barrel, underscoring investor weariness.
That falls short of the $65 target – in fact, it’s far closer to prices in November before the historic decision by OPEC and non-OPEC member nations agreed to limit their production. WTI closed at $45.23 per barrel Nov. 29. After the agreement was announced Nov. 30, the price surged to $49.08 per barrel.
Still, taking the per-barrel price to the mid-$60s by the end of the year is entirely feasible, said Dave Pursell, managing director and head of macro research at Tudor, Pickering, Holt & Co.
US Shale’s Stroke
The agreement between OPEC and non-OPEC member nations was indeed historic, and it provided a much-needed assist to oil prices in the fall.
“So if you were tight for revenue and you were an OPEC member, you could consider that at least a temporary success,” said Amy Myers Jaffe, executive director energy and sustainability at the University of California-Davis. “It might have made it clearer to them that they have this new problem: if you bring the market up to $65, almost everybody with a shale field in the United States can lock that in on the futures market and then drill for an entire year.”
The U.S. Energy Information Administration says shale oil in May will post the biggest monthly increase in more than two years. That raises the question of whether OPEC’s cuts are negated by tight oil.
“That’s what everybody’s worried about, and we should be. I think you’d be whistling past the graveyard if you weren’t concerned about it,” Pursell said.
On April 13, U.S. drillers added rigs for a 13th consecutive week, bringing the total to 683 – a number not seen since April 2015. A year ago, 351 oil rigs were active.
Still, adding to the rig count today boosts production figures for next year, Pursell said. The current forecast for U.S. production growth is 1.2 million barrels per day.
What Does OPEC Want?
In 2014, OPEC infamously snuffed out an effort to stabilize oil prices with volume quotas. Leading members Saudi Arabia, Iran and Iraq wanted market share. And by 2016, the trio’s output topped 19 million barrels a day, Pursell said.
“They gained market share. That was their purpose and they got it,” he said. “Now they have to get price up. Market share without price is not a victory, but you get market share first, then you get price up. I think what they’ve done so far has been wildly successful, but the game is not over yet.”
The purpose in November of the OPEC and non-OPEC production cuts was to reduce the oil storage overhang, said Michael Warren, managing partner at TrendMacro.Energy in Houston. That would’ve answered both the price issue and the supply/demand equation.
12
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- The Rigzone Interview: Private Equity Cash Focuses on Oil, Gas Development
- Could Argentinian Politics Beat the Vaca Muerta?
- The Rigzone Interview: Oil, Gas Goes Digital for Safety, Speed
- Deal Of The Month: EQT, Rice Energy Merge in Mega Marcellus $6.7B Gas Deal
- OpEd: OPEC Production Cuts Fail, Markets Pay for Underestimating US Shale
- ExxonMobil Racks Up Discoveries in Guyana Block Eyed by Chevron
- Oil Market Sentiment Has Improved Significantly
- EU, US Eye Collaboration on Nuclear Materials
- EU Electricity Export to Ukraine Up 94 Percent in Two Years
- China Coal Output Falls for First Time since Government Ordered More
- USA Driving Activity to Increase to All-Time Highs
- BP Pulse Buys One of Europe's Largest Truck Stops
- UK CCUS Plans Outdated: Think Tank
- TC Energy to Sell Prince Rupert Gas Pipeline Project to First Nation
- I Squared Eyes Full Ownership of Europe Gas Storage Firm
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- EIA Drops 2024 Henry Hub Gas Price Forecast
- EIA and Standard Chartered Offer Up Latest Oil Price Predictions
- Red Sea Region Sees Another Watershed Incident
- Chevron Oil Project in Kazakhstan to Cost $48.5B
- OPEC Voices Encouragement after IEA Affirms Support for Oil Security
- Biden Govt Bares Strategy for Freight Charging, Hydrogen Fueling Infra
- Ukraine Hits Third Russian Refinery In Escalating Drone Strikes
- Rystad Looks at the Buzz Around White Hydrogen
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Is Peak Oil Demand Close?
- Vessel Sinks in Red Sea After Missile Strike
- JP Morgan, Standard Chartered Reveal Latest Oil Price Forecasts
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Rystad Forecasts Net Production of Top Permian Producers in 2024
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension