There is no escape from this harsh reality — lesser oils entering the markets will mean better news for USA shale producers and further strengthening of the oil barrels.
Of course, higher cuts in crude oils will lead to oil prices stabilizing at $50 a barrel – the best performance for oil since 2014. It is good news indeed for USA shale oil producers for maintaining their production highs. However, it is bad news for OPEC. How long will OPEC go on protecting, defending and sacrificing its wealth and throughput for the sake of shale oil sector?
USA future market’s paper oil trading is now surpassing the Brent paper trading and regaining back its status since 2014. Interests for trading in USA crude oil total 2.4 million contracts (each contract is for 1,000 barrels) as compared to 2.37 million for Brent. The USA producer feels more comfortable playing in the oil markets with their own price tools, instead of going to the West and to Europe. Now the speculators have more confidence and feel better with their own barrels. The domestic oil production of USA is steadily increasing, reaching 9.2 million barrels, and shale oil production is more than 50 percent of the domestic oil production. As a result, some large publications’ oil bulletins are working on fixing a specific price indicator for US crude oil that is going to Asia.
So eventually the Brent-related crude oil will not be used for dealing with American oil, as the latter will have its own mechanism based on the daily movements of US oil market situation.
Therefore, OPEC can no longer contain shale oil growth and must live with it. It should defend indirectly as it can no longer allow the prices go down further by making oil production free for all. OPEC has no choice but to contain its production, cut deeper and stick to its production quota.
The oil organization now has no choice but to defend shale oil by cutting its own production, and sacrificing its own market shares. The only way is to maintain the prices at an acceptable level within the range of $50 and $55 per barrel. This level is too comfortable for shale oil producers, as they will continue to grow at profitable margin which can cover all their costs at the expense of OPEC.
By Kamel Al-Harami
Independent Oil Analyst