Ejiofor Alike with agency reports
The Minister of State for Petroleum, Dr. Ibe Kachikwu, has stated that the Organisation of Petroleum Exporting Countries (OPEC) will resist any deliberate action by shale producers to sabotage the oil market.
In their continuing efforts to stabilise the oil market, 14 OPEC member countries and 10 participating non-OPEC producing countries, led by Russia, extended their production adjustments, which originally started January 1, 2017, for a further period of nine months, beginning July 1, 2017.
The move will keep roughly two per cent of global production off the market in an attempt to boost prices.
Despite attempts by the cartel to reduce the excess inventory in the market to boost prices, Reuters reported that in the Permian Basin – the largest US oilfield – producers are pumping at the fastest rate in years, taking advantage of new technology, low costs and steady oil prices to reap profits at OPEC’s expense.
OPEC has acknowledged the global clout of shale but seeks to hinder its growth by keeping just enough oil supply on the market to hold prices below $60 per barrel.
â€œAll shale companies in the US are small companies. The reality is that at $50 to $60 a barrel, (the US oil industry) can’t break beyond 10 million barrels per day,â€ Reuters quoted Noureddine Boutarfa, who represented Algeria at the OPEC meeting, as saying.
â€œFor all OPEC members, $55 (per barrel) and a maximum of $60 is the goal at this stage,” said Iran’s oil minister, Bijan Zanganeh.
â€œSo, is that price level not high enough to encourage too much shale? It seems it is good for both,â€ he added.
OPEC has, however, realised that supply cuts and higher prices only make it easier for the shale industry to deliver higher profits after it found ways of slashing costs when Saudi Arabia turned up the taps three years ago.
OPEC meets again in November to reconsider output policy.
Though many OPEC members now appear to believe that shale has to be accommodated, there are indications that another fight is around the corner as Kachikwu has hinted that the cartel might review its strategies in the event of any sabotage by the shale producers.
â€œIf we get to a point where we feel frustrated by a deliberate action of shale producers to just sabotage the market, OPEC will sit down again and look at what process it is we need to do, Reuters quoted Kachikwu as saying.
The history of the relationship between OPEC and the US shale oil industry has evolved a great deal since the cartel discovered it had a surprise rival emerging in a core market for its oil around five years ago.
US shale bankers went to Vienna during the recent OPEC meeting and the cartel is said to be planning to send top officials to Texas in a bid to understand whether the two industries can co-exist or are poised to embark on another major fight in the near future.
â€œWe have to coexist,â€ said Khalid al-Falih, Saudi Arabia’s energy minister, who pushed through OPEC production cuts in December, 2016.
Riyadh’s previous strategy was to pump as much oil as possible and try to kill off US shale with low oil prices.
Shale’s limitations, including rising service costs were discussed by OPEC.
“We had a discussion on (shale) and how much that has an impact,” said Ecuador Oil Minister Carlos PÃ©rez.
â€œBut we have no control over what the US does and it is up to them to decide to continue or not,â€ he reportedly added.
When the OPEC delegates asked the chief executive of Permian oil producer, Centennial Resource Development Inc, Mark Papa, to give a presentation on shale’s potential, he reportedly appeared to have played his cards close to his chest.
â€œIn terms of the threat, we still don’t know how much (US shale) will be producing in the near future,â€ Venezuela’s oil minister, Nelson Martinez, said after the talk.
Some US shale leaders may also want a better insight into OPEC’s thinking and help OPEC understand that shale is not a flash in the pan.
Some of OPEC’s customers are happy to see an alternative as India, the world’s third-largest oil consumer, said it was looking to the United States for greater supply.
â€œThe new normal has to be accepted,â€ India’s energy minister, Dharmendra Pradhan, had said ahead of the OPEC meeting.