Oil's Comeback Uplifts US Shale, Complicates OPEC+ Task



Oil's Comeback Uplifts US Shale, Complicates OPEC+ Task
Futures settled at their highest since March 6 on Tuesday.

(Bloomberg) -- As OPEC+ producers head toward a consensus on extending output curbs, oil’s rally is prompting some U.S. producers to open their taps once again.

Futures settled at their highest since March 6 on Tuesday, the day the Saudi-Russian alliance broke down just as a global pandemic dimmed the outlook for demand. Oil’s rebound over the past month brings back concerns that Russia could again hesitate to extend output cuts, with rival shale producers signaling they are ready to re-open wells that were shut during the market’s collapse.

Further evidence of that threat emerged this week, when U.S. driller Parsley Energy Inc. said it’s turning oil wells back on just weeks after shutting them off, illustrating the shale industry’s agility in responding to rising crude prices.

“If everybody magically decides to turn the taps back on and lets the oil back to the surface, now you’ve got 1.5 million to 2 million barrels a day that needs to find a home,” said Stewart Glickman, an energy analyst at CFRA Research.

On Tuesday, OPEC members were still wrangling over when to hold their next meeting, against what’s still an uncertain demand backdrop. For now, Russia and several other OPEC+ nations are said to favor extending their current output cuts by a month.

It’s unclear if a month’s extension of curbs is enough for Saudi Arabia -- the biggest producer in the Organization of Petroleum Exporting Countries -- though the proposal is within the range of the kingdom’s own call for a one- to three-month elongation.

“It will be a question of how much price gains do you really want with the risk of the return of U.S. shale oil?” said Olivier Jakob, managing director of Petromatrix GmbH.

Prices:

  • West Texas Intermediate for July delivery rose $1.37 to settle at $36.81 a barrel on the New York Mercantile Exchange.
  • Brent for August delivery rose $1.25 to $39.57 a barrel.

North American oil production shut-ins peaked in May, and June curtailments should be “a fraction of the previously announced levels,” Bank of America analysts wrote in a Monday note.

Other oil-market news:

  • Russian oil prices are surging, offering the country a timely reminder of why it’s helping OPEC and other producers to make the deepest output cuts in history.
  • The country came close to hitting its OPEC+ production target in May, pumping 9.388 million barrels a day.
  • Swept up in the pandemic-driven energy crash, a prized ship fuel is facing a challenging recovery in Asia as supplies from other regions flood into the hub of Singapore, while a key source of demand dries up.
  • Gunvor Group Ltd., one of the world’s biggest independent energy traders, swung back to profit last year after its first-ever annual loss as liquefied natural gas and U.S. operations boosted the bottom line.

--With assistance from Alex Longley and Ronan Martin.

To contact the reporters on this story:
Hailey Waller in New York at hwaller@bloomberg.net;
Olivia Raimonde in New York at oraimonde@bloomberg.net

To contact the editors responsible for this story:
Pratish Narayanan at pnarayanan9@bloomberg.net
Carlos Caminada, Joe Carroll



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