OPEC Keeps the Deal Alive and Shale’s Dreams Too

The 172nd Meeting of the OPEC Conference and 2nd OPEC and non-OPEC Ministerial Meeting Vienna, Austria, 25th May, 2017

This Meeting was extremely important for OPEC and the Austrian authorities too, who were naturally very mindful of the atrocious terrorist attack in Manchester this week and others elsewhere beforehand.

Security had been stepped up to the highest level in years. It has always been in place for OPEC Meetings, but this time there was a greater awareness of the threat, with Ministers from twenty-four countries and market followers from around the world attending a series of meeting over the last few days.

During the opening address, HE Khalid A. Al-Falih, the Saudi Arabian Minister and Conference President announced that the market had moved towards balancing since the last Meeting in November, but that there was more work to do in terms of reducing inventories. International Oil Companies were publishing improved results and investment was returning to the upstream sector. He was optimistic about the future, expecting higher global GDP with healthy oil demand growth particularly from Asia, where most of OPEC’s business now lies. He was also very positive about the agreement between OPEC and non-OPEC producers.

The post OPEC Keeps the Deal Alive and Shale’s Dreams Too appeared first on The Energy Compass.

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The Doha Weekend

As we move closer towards 17 April, the day on which international oil producers have agreed to meet, conjecture mounts with views ranging from bearish to bullish.  No doubt depending upon what outcome is hoped for.

Earlier in the year, there was a ground breaking meeting at which Saudi Arabia and Russia not only met but also discussed the world oil glut and gave the impression that they would like to act to see the market re-balanced in their favour.  However, as often happens, neither party was willing to give way and the outcome of this event was that the two major producers, who are also direct competitors to each other, would freeze their respective output levels at maximum point.  How this was interpreted as “bullish” is hard to understand as, in theory, neither could easily increase beyond these levels anyway and therefore to continue production at these levels would simply add to the current supply surplus.  Nevertheless, it was an agreement which fired up the market and, in the hope of more to come, the OPEC Basket oil price has risen from a low of $22.48 in January to $38.62 today and over the same period the price of Brent Crude has risen from just over $30 to around $44 today.  Yet, nothing has really changed!


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Saudi Arabia Ideally Wants the Oil Prices to Stay Between $25-$40

The Shale industry has thrived on an oil price above $100 as much of OPEC did and without much concern for the threat of falling prices, believing that $100+ would be sustainable indefinitely and they could set their budgets accordingly.

Now, looking back at the meteoric rise in Shale production, at the end of 2013 only a couple of years ago, the industry was boasting that it would impact on most OPEC members’ output within a couple of years. However, today, following OPEC’s decision to maintain output and flood the market, much of the shale industry is struggling. Over the same period, the US rig count has fallen from close to 2,000 two years ago, to just over 1,000 one year ago and now less than 500. Likewise oil output from Shale has been hit and this year the IEA estimates that output will fall by around 600,000 bpd and by early next year that figure will have fallen further to 800,000 bpd. All good news for OPEC and certainly while the price of oil remains below the $40 level. Nevertheless, the industry has learned that once oil prices move above $40, some Shale production could come back but as this has not yet been put to the test, we don’t know how quickly the industry will be able to re-mobilise itself and also what output can be expected.


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OPEC Meets with Non-Member States

Figures this week confirmed that OPEC’s strategy to stunt US crude production, which started in November 2014, is now bearing fruit with US production now at November 2014 levels. Eleven months after OPEC ramped up output, US output peaked at 9.1 mbpd in June this year and has since fallen by around 500,000 bpd. OPEC meanwhile has seen an increase in demand ramp-up from 29.3 mbpd in 2014 to with demand forecast to reach at least 31.3 mbpd in 2016. However, this has come at a cost as OPEC crude prices are about 46% lower than 2014, equating to around $370 billion dollars in lost revenue.


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