Is the ‘oil honeymoon’ going to last? – OPEC must find the ‘majic number’ to deter shale oil producers

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Now that the oil prices are steadily and smoothly running at a good pace, with all oil-producing countries adhering to their word and commitment by 80 percent, and with the barrel price stabilizing at above $55 level for some time without any disturbances, we wonder for how long will this “oil honeymoon” last.

Will it remain for the coming six months or until when the shale oil hits the market back again? Will the new US administration introduce new tax on imported oils, encourage domestic oil producers to invest more internally and try to reduce its reliance on imported oil at least by 50 percent? Or will the shale oil producers just stand still and do nothing?

Certainly, it doesn’t seem so with the recent acquisition of USA shale oil company by the biggest oil company ExxonMobil at $6.6 billion for 160,000 barrels, thereby increasing to 350,000 barrels with this acquisition. This means full confidence in future shale oil. So with shale oil in the waiting and with the presence of advanced technology, more pressure will be imposed to reduce cost by any means. A very alarming outlook!

So this is why oil markets are looking for some positive news to keep the oil prices strong and stable, as the oil producers’ commitment still does not ensure enough confidence. More evidences are needed.

Maybe since we are just in the second month of the commitment to production cuts, what we need is strong evidences of more reduction of the surplus oil in the market. This is the dilemma of OPEC over when the market can get rid of the huge surplus. Then the market will swing in a different direction, heading towards higher prices, which may just give rise to shale oil again.

OPEC should be committed or Saudi Arabia at least should take the burden of balancing the market again, returning to its historic role.

The challenge for the oil organization and the producers of conventional oils is to find the magic number that will deter shale oil from full-blast production. This is not hard and is up to OPEC to figure out. In the meantime, a level of $60 per barrel is the threshold that OPEC should remain without going beyond it!

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By Kamel Al-Harami

Independent Oil Analyst

This news has been read 5892 times!