Price Drop Marks 'Concerning Time' for Producers

Price Drop Marks 'Concerning Time' for Producers
The drop in oil prices recently marks a concerning time for a lot of producers, Michael Burns, an oil and gas partner at law firm Ashurst told Rigzone.

The drop in oil prices recently marks a concerning time for a lot of producers, Michael Burns, an oil and gas partner at law firm Ashurst told Rigzone.

“The OPEC production cuts strategy does not seem to be holding prices and US shale activity appears to be increasing notwithstanding falling prices,” Burns said.

“‎The question is whether OPEC will respond with further cuts or whether it needs to look again at its macro strategy for addressing low prices,” he added.

At the time of writing, WTI Crude Oil was priced at $42.39 per barrel, with Brent Crude coming in at $44.66 per barrel, according to Bloomberg.

On May 23, WTI was as high as $51.47 and Brent reached $54.15.

Last month, OPEC and non-members led by Russia decided to extend cuts in oil output by nine months to March 2018.

Reuters reported that the market had been hoping oil producers could reach a last-minute deal to deepen the cuts or extend them further, until mid-2018.



WHAT DO YOU THINK?


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Thomas  |  June 26, 2017
OPEC is the only cartel that is allowed in the capitalist system to fix price but they seem dumb at using their opportunity, and instead allow the greedy Wall street or London (mercantile exchange) traders that have nothing to do with the physical oil to dictate oil price at which the people who actually sell or buy the physical commodity have to abide by. OPEC, if Smart, have two options: Option #1: They can decide a price and have all OPEC members sell their oil at the price they all agree to (say $60). They can do this and take away the control from greedy investors who drive price up or down for their own gain. OPEC controls about 40% of global supply, if they fix their price, buyers would be forced to buy because they have no choice. Consuming countries cannot wait to get supplies from limited non-OPEC countries (who are all already pumping their maximum possible) and have their energy and transportation grind to a halt, waiting for their turn to receive oil supply at the lower price determined by wall street. I bet that Russia will join to sell at same price fixed by OPEC members (or very close to it)and the rest of the poor producing countries would join in to sell at same price also and that will eventually result to the death of price determination/manipulation by wall street traders. Option #2: OPEC can decide to cut production by say a huge amount, say 8M bbl/day, a gap which will be impossible for US shale producers to fill in many years. By doing this, they will drive oil price above $100 (and rising) immediately. They will make more than double or triple their current revenue while lowering the depletion of their oil reserves - which will be a win-win for all OPEC members (much higher revenue with lower reserve depletion). By cutting so deep, it will take US shale producers many years to replenish 8M bbl/day and before they can get to the point of replenishing it, shale reserves would have dwindled so much if not totally exhausted and OPEC will have full control of oil price like never before.


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