Crude oil prices will trade in the range between US$50 and US$60 a barrel this year, Russia’s Oil Minister Alexander Novak said on Sunday. The minister met with counterparts from Saudi Arabia, Kuwait, Qatar, Venezuela, Algeria, and Oman to discuss ways of monitoring the compliance of the signatories to the oil production cut deal from last November and December.
Novak also said that for now, everyone is compliant and that the January cut could be higher than the agreed 1.7 million barrels. If this rate of compliance continues, balance will return to the market by July and not later as initially expected, he said. This echoes Saudi Arabia’s Khalid al-Falih’s recent statement that the production cut would not need to be extended the initial six months.
At the Sunday meeting in Vienna, al-Falih and his counterparts from Algeria and Kuwait said that OPEC members were cutting deeper than initially agreed and have already taken 1.5 million barrels per day off the market, which is most of the agreed 1.8 million bpd.
Oil at US$60 is a dream for all producers, or at least it used to be last year, when there was a belief among OPEC members that U.S. shale producers could be neutralized at this price level and oil should not raise above it. Related: Saudi Oil Minister Shrugs At U.S. Shale Recovery
Shale boomers, however, have proved to be much more resilient than expected, constantly pushing down their production costs and operational costs, challenging this belief. They are already expanding production, and this could interfere with the price expectations of Novak and others.
In fact, a scenario with oil at US$60 increasingly resembles a best-case one, as prices did not react to the December production curb agreement between OPEC and 11 other producers as enthusiastically as expected. And whatever enthusiasm there was quickly drained out, pressured by doubts about the willingness of the deal’s signatories to keep their end of the bargain.
To address these concerns, various OPEC members and Russia have made statements that all is going as planned. In fact, some OPEC members are going above and beyond what was expected of them while others are cutting ahead of schedule. The final touch in this reassurance campaign is the setting up of a special committee to monitor compliance.
By Irina Slav for Oilprice.com
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