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Will U.S. shale producers contribute to OPEC’s production cuts?

October 11, 2017 8:00 am


Jameel Ahmad is VP of Corporate Development and Market Research at FXTM

Ahmad writes that OPEC Secretary General Mohammed Barkindo has surprised many ahead of the upcoming OPEC meeting on November 30th in Vienna, by calling on U.S. shale producers to join forces with OPEC in its ongoing battle to reduce the persistent oversupply of oil in the market.

“It is no secret to anyone that OPEC and U.S. shale producers have been battling each other in a production war since the dramatic decline in the price of oil has begun three years ago; however, each party would benefit from a stronger price of oil in the medium to longer term,” said Ahmad.

“It would be ambitious to expect shale producers to join the current production cut agreement, but the same could have been said for OPEC working with non-OPEC members to limit production output, and this has actually taken place.”

VIDEO: IEA’s Atkinson says U.S. shale a challenge for OPEC

Saudi Aramco cuts output

Ahmad said that Saudi Arabia was making no secret of letting the world know about its underlying commitment to help re-balance the oil markets.

“The news that Saudi Aramco is set to make its deepest customer allocation cuts to crude oil in its history shows once again how committed Saudi Arabia is towards reducing the ongoing oversupply of oil in the market,” Ahmad said.

Read: What happens if OPEC maintains current levels of production?

Bloomberg recently reported that Aramco would cut 560,000 barrels a day in its allocations to customers next month, quoting the Saudi Energy Ministry in a statement. It said that Aramco planned to supply 7.15 million barrels a day, “despite a very strong demand,” which exceeds 7.7 million barrels a day.

Bloomberg reported that the Brent benchmark had erased earlier declines to trade marginally higher at $55.62 a barrel, after the news of the Saudi oil allocations cuts.

“This news shortly follows the historic visit of the Saudi King to Moscow, and we know that both of these nations are among the highest contributors to global oil production,” said Ahmad.

“Although the motive behind the Saudi King visiting Moscow would not have been purely to discuss oil, the combination of the visit with the announcement of further production cuts does help improve sentiment ahead of the upcoming OPEC meeting on 30 November,” Ahmad added.

Last week saw the inaugural visit for a Saudi monarch to Russia, and the two sides agreed on billions of dollars in projects, including a $1 billion fund on energy cooperation.

Read: Does the OPEC meeting actually mean anything?

 

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Jameel Ahmad is an expert in financial market developments, and specialises in global currencies, commodities and emerging markets. FXTM’s VP of Corporate Development and  
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