Shale pumping and OPEC panicking: Saudi, Iran, could agree on easing oil cuts
Oilprice.com, an oil industry analytics leader, said OPEC oil prices jumped last Friday following a drop in US oil rigs, and news that the Trump Aluminum and Steel tariffs would be selectively implemented.
This adds to several variables wreaking havoc in the oil industry today led by American shale helping push US oil production to over 10 million bpd and exporting to areas usually the domain of Middle East exporters.
Could OPEC ease cuts in an effort to lower prices and curb US production?
Oil posted some steep losses mid last week after the Energy Information Administration (EIA) reported another crude oil inventory increase, according to OilPrice.com.
Total OPEC production dropped to 32 million barrels per day in January, a 9-month low largely the result of a sharp decline in output from Nigeria and Venezuela.
“There is no plan to do anything (about Venezuela’s output) at this point,” Saudi oil ministry adviser Ibrahim Al-Muhanna said at the recent CERA Week Conference. “The market has not reached the point of balance … there is no need to address it this year.
Bloomberg said Brent crude, the benchmark for more than half the world’s oil, is trading near $65 a barrel, compared with about $45 in June 2017. West Texas Intermediate (WTI), the U.S. marker, is currently near $62 a barrel.
Oil price predictions
ING, a Dutch multinational banking and financial services organization, forecasts Brent at $57 in the second half of 2018.
Citigroup, a leading global bank said oil to drop below $60 by summer. Citi’s Global head of commodities research Ed Morse says that U.S. shale is going to flood the market, pushing Brent prices into the $50s within a few months, Bloomberg reported.
Gary Ross, global head of oil analytics and chief energy economist at S&P Global Platts, told the Wall Street Journal (WSJ) that WTI could jump into the $70s later this year because of soaring demand.
Prices were at more than $115 in mid-2014, before a global supply glut sparked an oil crash.
US effect on OPEC cuts
Crude’s rebound since last year has encouraged American drillers to pump.
The US would alone be able to meet as much as 80% of growth in global oil demand over the next five years, the IEA said.
“This could very well wipe out any price gains that OPEC is hoping for as a result of its production cuts,” said Bloomberg.
Oil risks sliding back under $60 a barrel as a surge in U.S. shipments to Asia threatens to undermine a deal between OPEC and its allies, according to ING.
While OPEC is cutting oil production by nearly 1.8 million bpd, U.S. flows that are gaining a bigger slice of Asian markets, traditional bastion of Middle East producers, may prompt some OPEC nations to boost supplies, Warren Patterson, a commodities strategist at the ING told Bloomberg.
“They continue to give market share away to the U.S,” Peterson said describing the OPEC plight.
U.S. is now pumping more than 10 million bpd and exports have averaged about 1.5 million barrels over the past six months, almost double the level in the previous six months, EIA said.
US Crude shipments overseas could reach 4 million bpd by the mid-2020s, Bloomberg reported.
According to WSJ, OPEC is breaking down into two camps where on one side Saudi wants oil prices at $70 a barrel or higher, and on the other is Iran, which wants them around $60.
“The split is driven by differing views over whether $70 a barrel sends U.S. shale companies into a production frenzy that could cause prices to crash and at stake is OPEC’s production limits,” WSJ said.
Concerns about shale output will likely dominate OPEC’s next meeting in June in Vienna, OPEC officials say.
Iran pumps about 3.8 million bpd and could produce about 100,000 barrels a day more.
Iranian officials said OPEC could agree in June to begin easing current production limits in 2019 and the Saudis have expressed openness to that idea, according to WSJ.
Saudi Aramco: $20 trillion investments needed
The oil industry needs $20 trillion in investment over the next 25 years just to meet expected demand, while also accounting for natural depletion at existing fields, Aramco’s CEO Amin Nasser said at the CERA conference.
Meanwhile Saudi Aramco is considering a massive spending spree on shale.
Bloomberg reports that Aramco could begin producing shale gas this month from its North Arabia basin and the company could spend as much as $300 billion to develop oil and gas projects, including shale gas, over the next 10 years.