In an unconventional plea to U.S. shale drillers, OPEC's Secretary General Mohammad Barkindo urged North American producers on Tuesday to share the responsibility for drawing down the global oil overhang.
"Emerging from this most vicious of all oil cycles, the need to sustain the rebalanced market in the medium- to long-term, some extra-ordinary measures could be considered by countries participating in 'the Declaration of Cooperation', including expanding the membership," Barkindo said in a speech at the India Energy Forum in New Delhi.
"This is a shared responsibility of all producers, be they conventional or non-conventional, short- or long-cycle investors. We all, at the end of the day, when all is said and done, belong to the same industry and operate in the same markets. We urge our friends in the shale basins of North America to take this shared responsibility with all the seriousness it deserves, as one of the key lessons learnt from the current, unique supply-driven cycle," OPEC's Secretary General said.
The oil price crash drove many U.S. shale operators out of profitability, but it was OPEC-and-partners' production cut deal that gave support to oil prices late last year and early this year, prompting U.S. drillers to return to grow production.
Currently, the EIA expects total U.S. crude oil production to average 9.3 million bpd for 2017 and 9.8 million bpd in 2018, which would mark the highest annual average production in U.S. history, surpassing the previous record of 9.6 million bpd from 1970. Last year, average U.S. oil production was 8.9 million bpd, lower than the 2015 level of 9.4 million bpd.
Rising supply from the U.S. and from other producers outside of the deal, as well as recovery of production in exempt OPEC members Libya and Nigeria, have been offsetting much of the OPEC/non-OPEC production cuts. Related: Has The Bear Market In Oil Finally Ended?
But with strong oil demand growth, summer demand, and Brent futures flipping to backwardation, the OECD commercial stocks have started to draw down faster in the summer. Over the past five months, OECD commercial stocks have dropped by 130 million barrels, OPEC's Barkindo said in his speech, but noted that there was still a 171-million-barrel overhang in August.
Yesterday Barkindo said the cartel might have to take some "extraordinary measures" to restore the oil market stability.
"There is a growing consensus that, number one, the re-balancing process is underway. Number two, to sustain this into next year, some extraordinary measures may have to be taken in order to restore this stability on a sustainable basis going forward," OPEC's chief noted.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
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