THE US shale oil producers should indeed be grateful to OPEC for raising the oil price to above $73 a barrel for the US crude oil. OPEC and partners had helped in bringing the oil price to such a level that USA producers are now relaxed, making money, curtailing production or not in hurry to increase its rig numbers. They are enjoying the party with their own shareholders generating profit and inflow of cash to such an extent that they are not bothered to look or monitor the oil prices. They are even ignoring the OPEC-Plus’ outcomes.
One year ago, they were on the brink of bankruptcy, and today they are doing nothing but ploughing cash dollars. The oil organization adopted its own strategy of reducing production by more than nine million barrels and waited patiently to dry out all of the excess oil in the storage tanks and let the oil market carry out its own tricks. They left the decision in the hands of OPEC-Plus and its own timing. Surprisingly, all members had fully adhered, and one of them sacrificed millions of barrels in order for the price to move gradually to its current level of $ 75 and more. Today’s oil price is at a comfortable level. However, it raises some questions as to what level it should be before inflation starts to affect the gains. Would consumers start raising their voices? Such a decision may take longer time under today’s concerns in terms of the COVID-19 variants, which could curtail oil demand and economic growth.
The other OPEC concern is Iran and how soon it will come into the market and give room to the new fresh volume as well as its impact on the oil market. Will the volume be more than two million or less per day? Since oil supply discipline is the only factor that OPEC-Plus thinks about day and night, this would be their nightmare. Meanwhile, the USA shale oil sector is not in a hurry to do anything and not bothered… It is collecting cash and is ready for distribution to its owners. The number of new rigs is 200 as compared to a height of 1,600 in 2016. Now they only follow OPEC-Plus and are most likely cooperating also with the organization indirectly.
In the future, they may attend OPEC as an observant! None of us expected such an increase in the oil price in such a short time. No one expected the full adherence of OPEC-Plus members led by Saudi Arabia to achieving such results, as one member had sacrificed to ensure smooth and gradual increase in the value of the barrel. Will $80 per barrel be the breaking factor maybe by the end of the year? Would shale oil producers reward OPEC by staying on the sidelines?
By Kamel Al-Harami Independent Oil Analyst