Shale shadows Opec cheer
OIL’S price rally this year to its highest since May 2015 may seem a source of glee for Opec, but some fear the gains could prompt shale companies to crank open their spigots and flood the market.
Benchmark Brent crude rose further above Tuesday’s $68, supported by oil output cuts led by Opec members and allies including Russia that are due to run to the end of 2018.
The surge comes as a welcome boost for the revenues of oil-producing nations, many still reeling from a price collapse that started in mid-2014 when crude plunged from above $100 due to oversupply.
Some in Opec are worried a prolonged rally could stimulate more US shale oil output, creating more oversupply that could weigh on prices and market share.
“We all are excited about the rally and want to see if it will be sustainable during the year, as it will certainly whet the appetite of shale producers,” an Opec official said.
The oil minister of Iran, Opec’s third-largest producer, said on Tuesday that the organisation’s members were not keen on increased prices as such gains would encourage more shale production.
Opec has no formal target for oil prices. However, Saudi Arabia, Opec’s top producer, wants to see crude above $60 to boost the valuation of its national oil company Aramco before an initial public offering of shares this year and to reduce the gap in its state budget, Saudi sources have said.
Opec sources say Saudi Arabia has become a strong advocate of higher prices, a shift from a more moderate stance in the past, and Saudi officials have downplayed the threat of a boost in shale production. Even so, US production is tipped to exceed 10 million barrels/day soon, close to Saudi levels, due hugely to soaring output from shale.
Opec officials think the 2018 rally has been driven more by unrest in Iran than a tighter balance between supply and demand. —