• 4 mintues Texas forced to have rolling brown outs. Not from downed power line , but because the wind energy turbines are frozen.
  • 7 minutes Forecasts for oil stocks.
  • 9 minutes Biden's $2 trillion Plan for Insfrastructure and Jobs
  • 13 minutes European gas market to 2040 according to Platts Analitics
  • 11 hours Simple question: What is the expected impact in electricity Demand when EV deployment exceeds 10%
  • 10 hours America's pandemic dead deserve accountability after Birx disclosure
  • 2 days Biden about to face first real test. Russia building up military on Ukraine border.
  • 2 days Trump punches back at Fauci and Birx's revisionist history (aka lies)
  • 4 days The coming Cyber Attack
  • 23 hours U.S. and Chinese investors to buy Saudi pipelines , $10 Billion deal.
  • 1 day Create a new law "Postericide" to prosecute and imprison Climate Change "Deniers"
  • 2 days New Chinese Coal Plants Equal All those in U.S.A
  • 3 days Goldman Betting on Cryptocurrencies
  • 16 hours NG spot prices hit triple digits for weekend delivery
  • 5 days New German Study Shocks Electric Cars: “Considerably” Worse For Climate Than Diesel Cars, Up To 25% More CO2
  • 6 days Beware the Left's 'Degrowth' Movement (i.e. why Covid-19 is Good)
  • 6 days Forecasts for Natural Gas
Ecuador's Oil Industry Desperately Needs A Miracle

Ecuador's Oil Industry Desperately Needs A Miracle

Ecuador’s oil industry is facing…

The U.S.-China Trade War Isn’t Over Yet

The U.S.-China Trade War Isn’t Over Yet

Energy markets have been seriously…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

More Info

Premium Content

OPEC Needs A Miracle To Push Prices Higher

It’s not a secret: OPEC has painted itself into a corner by relying exclusively on supply control to be able to manipulate international oil prices in a way that is favorable for its members. Right now, prices are depressed and that has nothing to do with supply. Could OPEC’s grip on oil prices be slipping irreparably?

When OPEC first announced that its members had agreed to put a cap on their production to reverse a steep drop in prices, it worked. Prices had been pushed to lows last seen more than a decade ago by the U.S. shale boom and OPEC’s own attempt to halt it by turning the taps on to maximum flow. When OPEC said it would reduce this flow, prices rebounded, providing much-needed relief to oil-reliant economies in the Gulf—it also provided relief to oil producers around the world, including the U.S. shale patch.

The shale patch recovered so well that now U.S. oil production is at an all-time high with the country last year becoming the world’s largest producer. Meanwhile, OPEC and its partners led by Russia decided to cut again. This time, however, the cuts didn’t work. Prices remained subdued save the occasional short-lived rally. While it’s true Brent and WTI are both higher than they were before the second round of cuts was announced, the international benchmark is much lower than OPEC’s largest producers, notably Saudi Arabia, need it to be.

The reason these cuts aren’t working is that market movers are not watching them. They are watching the tariff match between Washington and Beijing—a match that could hurt global oil demand. According to forecasters, it is already hurting it and as a result, it is hurting prices.

“OPEC’s burden is to show that it still has the appropriate tools to arrest price declines driven in no small part by White House policy,” RBC’s head of commodity strategy, Helima Croft, said in a note to clients as quoted by CNBC this week. “It may prove easier to clean up the physical market than to overcome skepticism about the ultimate efficacy of its strategy in the age of Trump,” Croft added. Related: Scientists Find Cheaper Way Of Tapping Shale Gas Resources

"The recent crash of 2014-16 demonstrated the reduced impact that OPEC now has on oil prices. While OPEC was announcing production cuts, the US onshore shale boom easily counteracted any upward price pressure. Currently, sanctions on Iran and Venezuela continue to undermine the influence of OPEC," Jason Lavis, partner at oil industry platform Drillers.com told Oilprice.

When OPEC+ met last December, the partners agreed to take off a combined 1.2 million bpd from the global oil market. This July, they agreed to extend the cuts to the end of the year or even early 2020. Yet the cartel’s total production is actually down by more than 1.2 million bpd: U.S. sanctions on Venezuela and Iran have hurt these countries’ production rates severely. Even so, Brent is stubbornly hovering around $60 a barrel. The trade war worry, coupled with the relentless rise in U.S. production, has played a bad trick on OPEC.

It seems the only way to achieve higher prices would be to cut deeper. It is the only way that would make sense seeing as the maximum-production strategy failed spectacularly. However, deeper cuts would mean loss of market share, and any change in prices might not be substantial enough to justify this loss. In this context, it is highly doubtful that some OPEC members—and Russia, too—would agree to reduce their oil production by much more. This means OPEC might just need to sit on the sidelines and watch the trade war developments hoping for a deal: that could be the miracle the cartel needs to get the higher prices its members’ economies rely on. Whether a trade deal would push prices up to the $80 level Saudi Arabia needs is doubtful but in the end, anything higher would be better.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • John Di Laccii on September 09 2019 said:
    Great news, Saudis will not have enough money to finance ISIS and Muslim Brotherhood. And maybe will sink as well into quicksand. Great News. Beautiful nation of Saudi Barbaria will run out of money. Great news. No money for Al Qaida. Great news.
  • John Di Laccii on September 09 2019 said:
    Consequently Aramco IPO will underperform and MBS will be depressed as hell, he might be mad and chop sone more heads and dilute them in an acid, according to Qoran. Few more arseholes in Mhekkah will be depressed as well, Erdogan as well. His hemorroides will start bulging. Great news. Build a wall. We have to build a beautiful wall between EU and the Wild East.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News