• 1 hour Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 18 hours Oil Prices Rise After API Reports Major Crude Draw
  • 19 hours Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 19 hours Gazprom Speaks Out Against OPEC Production Cut Extension
  • 20 hours Statoil Looks To Lighter Oil To Boost Profitability
  • 21 hours Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 22 hours Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 23 hours Whitefish Energy Suspends Work In Puerto Rico
  • 1 day U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 2 days Thanksgiving Gas Prices At 3-Year High
  • 2 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 2 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 2 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 2 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 2 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 2 days ConocoPhillips Sets Price Ceiling For New Projects
  • 5 days Shell Oil Trading Head Steps Down After 29 Years
  • 5 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 5 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 5 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 5 days Venezuela Officially In Default
  • 5 days Iran Prepares To Export LNG To Boost Trade Relations
  • 5 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 5 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 6 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 6 days Rosneft Announces Completion Of World’s Longest Well
  • 6 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 6 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 6 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 6 days Santos Admits It Rejected $7.2B Takeover Bid
  • 6 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 7 days Africa’s Richest Woman Fired From Sonangol
  • 7 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 7 days Russian Hackers Target British Energy Industry
  • 7 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 7 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 7 days Lower Oil Prices Benefit European Refiners
  • 7 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 8 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 8 days Iraq Oil Revenue Not Enough For Sustainable Development
Alt Text

Is OPEC Deal Compliance About To Crash?

OPEC’s victory lap to celebrate…

Alt Text

The IEA Is Grossly Overestimating Shale Growth

The IEA’s forecast that U.S.…

Zainab Calcuttawala

Zainab Calcuttawala

Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…

More Info

OPEC’s “Whatever It Takes” Is An Empty Promise

OPEC

High demand for air conditioning and fuel for road trips make summer the best time for the Organization of Petroleum Exporting Countries (OPEC) to cut production or exports to end or lessen the supply glut that has plagued oil markets for three years. Current oil prices, however, indicate that no one is holding their breath for OPEC to follow through with its “whatever it takes” promise to draw down supply.

The Energy Information Administration (EIA) predicted last month that gasoline consumption in the U.S. during the summer months will peak at 9.5 million bpd—up 20,000 bpd from 2016, a record high year for fuel demand, in what would be a prime time for OPEC to implement additional measures.

But de-facto bloc leader Saudi Arabia is expected to have increased exports in June—after two months of decline. True, it's current production level is still below the 10.06 million bpd quota it promised back in November, but it’s not looking like the Kingdom’s production will fall lower like it did during previous months this year.

“Saudi Arabia has gone quiet on the solution of ‘whatever it takes’ to force the market into rebalancing,” Olivier Jakob at the Swiss consulting firm Petromatrix told World Oil. And that is indeed what traders are hoping will happen.

All price gains from the initiation of the much-awaited 1.2-million bpd cuts have now evaporated, and other bloc members, as well as non-OPEC producers, seem to be waiting on the KSA to make the next move. There’s a logic in this, because Saudi Arabia has a lot to lose in a low-price environment, and the upcoming Saudi Aramco IPO gives Riyadh the biggest incentive to fix the oil markets. A low share price could delay its precious Vision 2030, Crown Prince Mohammed bin Salman’s plan to create a service and commodities based economy that will no longer depend on oil. Related: ‘’U.S. Rig Count Must Drop 150 For Oil Markets To Balance’’

Saudi Arabia took its sweet time getting in the production-cutting mood the first time around, spending two years after the initial crash watching the Venezuelan and Algerian economy fall apart. And when international sanctions against Iran were finally lifted in 2016, it undertook a production race to hold onto the market share it had gained during Iran’s six-year oil market hiatus.

When oil prices finally rose in January, so did cheap shale oil output in the United States, as U.S. producers viewed slightly higher fuel prices, even at the cost of a full market recovery, as an opportunity to bring new rigs online in the Permian and Bakken formations.

This North American shale was not on OPEC’s radar when member countries first discussed their cut late last year. President Barack Obama, with approval from Congress, lifted the ban on American oil exports in December 2015, but it took most of 2016 for U.S. marketers to break into international markets that have been dominated for decades by Russia and Middle Eastern and South American petrostates. The latest report from the Census Bureau pegs U.S. exports at 1.02 million bpd in May, up 20,000 barrels per day from April. Those supplies alone counteract over 80 percent of the OPEC cut. Add new output from Nigeria and Libya to the equation and you have enough production to quash any OPEC efforts to curtail the 2 million bpd excess in supplies that caused the price crash in the first place.

“For some time we’ve been saying OPEC needs to step up,” Amrita Sen at Energy Aspects told World Oil last week. “Exports need to come down further.”

Riyadh has tried to lower exports to American buyers, but No. 2 OPEC producer Iraq willingly supplied the U.S. with oil in its stead, preventing the intended decline in U.S. inventories.

Meanwhile, Asian docks could be holding as many as 50 very large crude carriers (VLCC), each carrying up to 2 million barrels of oil, as of last month, as traders hold increasingly high volumes of oil in the wake of a 10 percent fall in oil prices since late May.

In light of the high global inventories, a set of seasonal production cuts for the summertime would go a long way towards rebalancing market fundamentals, and “whatever it takes”—whatever that is—would have the most impact during this time.

By Zainab Calcuttawala for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




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