OPEC+ is gaining the upper hand as a trendsetter on global oil markets, Vitol’s head of operations for Asia, Mike Muller, said as quoted by Bloomberg this weekend.
“There’s a perception in the market that control is with OPEC+,” Muller said at an industry event. “It will take a long time for U.S. oil to come back” to pre-pandemic production levels.
OPEC+, meanwhile, has around 6 million bpd in spare production capacity amid the cuts, Bloomberg reports.
The latest sign that OPEC+ is in control of oil markets came with the latest price rally: oil benchmarks have hit a two-year high on recovering oil demand in Europe and the United States, but demand recovery is not the only factor. OPEC+ has reiterated its intention to add some 2 million bpd to its combined production from July, but there is no talk of adding any more production.
That’s despite a comment from none other than the International Energy Agency’s Fatih Birol that unless OPEC+ adds more barrels to daily output, prices will go even higher. This comment, in fact, is yet proof of the weight OPEC+ carries in oil markets, just a couple of years after its relevance to oil prices was questioned by analysts who pointed to the United States as the new trendsetter.
Since then, however, U.S. oil production has fallen from over 13 million barrels daily to less than 11 million barrels daily as producers continue to practice restraint after the blow they suffered from the pandemic.
This has strengthened the position of OPEC+ in the post-pandemic world, with its combined production cuts still seen as fundamental to the improvement in prices over the last few months. This position could strengthen even more during the Biden administration, with its renewable energy-focused agenda and ambitions to reduce households’ and businesses’ reliance on fossil fuels.
By Charles Kennedy for Oilprice.com
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OPEC+ emerged from the pandemic in full control of the global oil market with its brilliant handling of the market via its disciplined production cuts acknowledged worldwide even by US oil majors and shale oil drillers.
On the other hand, the US shale oil industry emerged weaker and leaner and also less influential in the market with its fate in the hands of OPEC+.
If shale oil drillers ever try again to undermine OPEC+’s policies to support oil prices and stabilize the market by reckless overproduction, OPEC+ will go for a strategy of expanding its market share thus causing prices to fall below the breakeven price of most shale oil producers.
There is a growing optimism in the market that both oil prices and demand have more room to run despite OPEC+ intention to add some 2 million barrels a day (mbd) to its combined production from July.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
US vehicle fuel consumption mainly in the form of gasoline continues to plunge ... which makes for quite the spectacular loss of tax revenue for the tax man no doubt. I still see US gasoline prices heading to ten cents a gallon by this Fall but we'll see. Certainly no shortages and with far more efficient use of fuel period thanks to Tesla has made for quite the renaissance in logistics in the USA after an epic bubble that burst in 2008.