Monday, 12 March 2018

OPEC price restrictions still works but for how long?

The oil price, which goes in and out of fashion, has had in interesting 2018 so far. Last year, OPEC finally managed to get Russia and Saudi to agree price cuts, which together with falling exports from Nigeria and Venezuela (due to incompetence and corruption) had offset the rapid rise on Iran and Iraq as producers. Image result for oil price graph 2018

The next impact was to see oil prices recover last year from the multi-decade lows to around the $40-$50 per barrel. Indeed by the year end the trend had take the price over $60, way above where any predictions are.

However, there is still a big variable. The USA has become a bigger supplier of crude than Saudi Arabia, second only to Russia. The shale oil that the US has is ready for export and the US refineries don't rely on Saud anymore with imports down heavily to less than 10% of the US market.

Shale is now profitable at the $60 mark quite easily and rig counts are rising slowly in the US. So this may well put a cap on the price rises, even as Russia has agreed to extend production cuts (incidentally and anecdotally, supplies of processed oil from Russia are being pushed away from Europe to China, which long-term the Kremlin sees as a more stable political ally - good luck with that!).

So to date in 2018 we have seen a drop off in the price of crude, perhaps marking the top of this recent boom and seeing a more stable pricing for the rest of the year. A benefit of this to the little UK play in oil and gas is that $60 also works, just, for the remaining North Sea oil so there should be a small recovery in Scotland that is more sustainable.

All of this has big impacts on geopolitics, it is not coincidence that Saudi is throwing its financial muscle around whilst it still can.


Nick Drew said...

In that context, read this:

"The irony is that the substantial gains in output from shale will only be possible because of the OPEC cuts, which has tightened the market and boosted prices. This fact is not lost on OPEC producers. "If you are a shale oil producer, who brought you back? It was OPEC," the UAE’s oil minister Suhail Al Mazrouei, said ... "Without OPEC there’d be chaos in the market.""

CityUnslicker said...

Those Rednecks from Bakken will be lining up to go to Saudi and Qatar to tip their hats to the munificent kinglings....

hmmm...not sure this will work out all that well for OPEC, although the damage to them is done, even crazy market pricing wont have oil over $100 for a very, very long time. The long-term trend will be down for a decade or more.

James Higham said...

“The USA has become a bigger supplier of crude than Saudi Arabia, second only to Russia.”