Rising US shale-oil output threatens OPEC's production pact

Brittany BishopJan 18, 2017

Saudi Energy Minister Khalid al-Falih said that the Kingdom would adhere to its pledges, expressing confidence that OPEC's plan to prop up prices would work.

Brent crude, the global benchmark, lost 39 cents, or 0.7%, to $55.47 a barrel on ICE Futures Europe.

Traders are also watching rising USA output with interest, as this could offset supply cuts elsewhere.

Crises-struck OPEC member Venezuela will "soon" begin another tour among major oil producing countries to circulate a new proposal to stabilize crude oil prices, the country's president, Nicolas Maduro, said Sunday, Kallanish Energy reports. Russian Federation and other key exporters outside OPEC have said they will also cut output. Falih said that OPEC and non-OPEC producers are unlikely to extend their agreement to cut oil output beyond six months, especially if global inventories fall to the five-year average. Some important non-OPEC producers, including Russian Federation, have said they will also cut output.

While there are no firm numbers for Organization of the Petroleum Exporting Countries production, optimism is growing that the majority of members will actually make cuts as promised in its November meeting.

OPEC is confident oil prices will remain stable throughout 2017.

US oil output is now at 8.95 million bpd, up from less than 8.5 million bpd in June a year ago and generally at levels in 2014, when overproduction sent the market into a tailspin.

Data from the U.S. Energy Information Administration showed crude production rose notably last week, particularly in 48 southern states.

Production in the USA has increased by about 460,000 barrels a day, or 5.4 percent, in the past six months after falling by nearly 600,000 barrels in the first half of a year ago.

"U.S. shale is coming back, but it isn't roaring back at current prices of $50 to $55 a barrel", BP's Dudley said. Oil prices have slumped 5 percent in the first few weeks of the year.

Like Falih, Birol supported his argument by pointing out that declining global investment in oil development in 2015-2016 is without precedent, and that following this period was two years of collapsed prices that discouraged exploration and led to no large discoveries. "The physical effect of the deal would increase oil price more by clearing the glut in markets", Iran's state-run IRIB TV quoted the minister as saying.

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