• 3 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 7 minutes Saudi and UAE pressure to get US support for Oil quotas is reportedly on..
  • 11 minutes China devalues currency to lower prices to address new tariffs. But doesn't help. Here is why. . . .
  • 15 minutes What is your current outlook as a day trader for WTI
  • 14 hours In The Bright Of New Administration Rules: Immigrants as Economic Contributors
  • 8 hours Will Uncle Sam Step Up and Cut Production
  • 1 day Movie Script: Epstein Guards Suspected Of Falsifying Logs
  • 9 hours Trump vs. Xi Trade Battle, Running Commentary from Conservative Tree House
  • 12 hours Continental Resource's Hamm (Trump Buddy) wants shale to cut production.Can't compete with peers. Stock will drop in half again.
  • 1 hour Domino Effect: Rashida Tlaib Rejects Israel's Offer For 'Humanitarian' Visit To West Bank
  • 1 day Significant: Boeing Delays Delivery Of Ultra-Long-Range Version Of 777X
  • 44 mins Gretta Thunbergs zero carbon voyage carbon foot print of carbon fibre manufacture
  • 5 hours NATGAS, LNG, Technology, benefits etc , cleaner global energy fuel
  • 2 days Kremlin Says WTO's Existence Would Be In Doubt If the U.S., Others Left
  • 2 days I think I might be wrong about a 2020 shakeout
  • 2 days China Continued Iran Oil Imports In July In Teeth of U.S. Sanctions
  • 2 days Strait Of Hormuz As a Breakpoint: Germany Not Taking Part In U.S. Naval Mission
Alt Text

What’s Stopping Oil From Breaking Out?

Oil prices inched higher at…

Alt Text

Oil Crashes As Trade War Escalates

Oil prices crashed on Thursday…

Alt Text

Oil Rises As Market Awaits Saudi Move Counter Glut

Despite another gloomy demand forecast…

Stuart Burns

Stuart Burns

Stuart is a writer for MetalMiner who operate the largest metals-related media site in the US according to third party ranking sites. With a preemptive…

More Info

Premium Content

OPEC’s Latest Agreement May Not Stabilize Oil Prices

The 14-strong Organisation of Petroleum Exporting Countries (OPEC), along with 10 oil states outside of the cartel, has reached an agreement to limit oil output until the end of 2018. This decision comes after what has already been more than a year of production cuts, the Telegraph reports.

This new deal, wider and more inclusive than the one running since the beginning of this year, will also extend to Nigeria and Libya. Previously, these two countries were exempt from the production quotas, despite being OPEC members, because of their struggles with internal political unrest.

OPEC crucially reached an agreement despite the last-minute posturing from Russian oil minister Alexander Novak, who warned that oil prices above $60 a barrel could reignite a production boom in the U.S. shale industry.

The agreement reached by the OPEC and non-OPEC members faces several serious challenges in achieving its objective of stabilising oil prices. The first is that one of its core members, Russia, does not appear to share the same objectives. They may be saying the right things, but according to Georgi Slavov, head of research at broker Marex Spectron, Russia’s cooperation is mostly “in words.”

Related: What’s Holding Back Saudi Vision 2030?

“In reality Russia has been pumping oil like crazy and this will likely continue. As prices rise the incentive to cheat will too. Others may join the party,” Slavov said. “It is astonishing that the entire market is ignoring this. The market’s fixation is currently on what could happen. However, it is not paying attention to what is actually happening.”

A later article throws further light on the Kremlin’s position, saying Russia has a higher tolerance for depressed prices since the floating rouble cushions their budget.

Russia aims to balance the books at oil prices of $44 by 2021 under its fiscal plan, compared to $113 four years ago. Supported by ultra-low production costs, Russia is loath to cede market share and worried that prices above $60 a barrel will re-ignite significant U.S. shale activity, bringing prices down and reducing everyone’s market share as the same time.

They may be right. Wood McKenzie is quoted as saying that drillers have hedged 900,000 barrels in the third quarter when West Texas crude was around $52 dollars a barrel. A significant rise in 2018 and 2019 futures prices would lead to an avalanche of hedges, triggering a surge in U.S. rig activity.

U.S. oil production has already reached a record of 9.66 million b/d following a 25 percent rise in the oil price this year. Rystad Energy is quoted as saying that U.S. output will jump to 9.9m b/d as soon as December, up by 600,000 b/d in four months, while the International Energy Agency forecast that U.S. “tight oil” will account for 80 percent of all new global supply by 2025, rising from 5m to 13m b/d. Total U.S. production will hit 17m b/d. Related: The Geopolitical Video Game

It must be said that not everyone agrees. Some analysts believe that the low hanging fruit has already been plucked and that well depletion and expansion into less favourable fields will require higher oil prices to unleash significant further investment. But doubters of the U.S. shale industry have been proved wrong before, so Russia’s concerns are certainly not without merit.

Finally, a balancing of supply with demand is predicated on demand continuing to grow. That largely means China, where GDP growth by some measures is already down to 5.6 percent and where Beijing’s efforts to avoid a credit bubble may force the market to slow further in the run-up to the end of the decade.

With rising supply from Kazakhstan and Brazil expected early next year, a rebalancing of the oil market may not arrive before the end of 2018 by which time either or both of the above challenges may undo the agreement reached this week.

At best, the extension of OPEC’s output cuts may stabilise prices at current levels but even that outcome is not a foregone conclusion.

By Stuart Burns via AG Metal Miner

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play