OPEC won’t extend output curbs to offset US shale production
Houston - Senior Saudi energy officials told top independent US oil firms in a closed-door meeting that they should not assume the Organisation of the Petroleum Exporting Countries (OPEC) would extend output curbs to offset rising production from US shale fields, two industry sources said.
Oil producers led by Saudi Arabia and top non-OPEC exporter Russia are in an uneasy truce with US shale firms after a 2-year price war that caused many shale producers to reduce operations. The Saudis and Russia led a deal in late 2016 to curb output to end a global supply glut that pushed oil prices to a 12- year low.
The resulting rise in oil prices has sparked a rush of new output by shale producers, who have outlined ambitious production growth plans across the United States.
Speaking at an industry conference in Houston, Saudi Energy Minister Khalid al-Falih said there would be no “free rides” for US shale producers benefiting from the upturn.
Falih’s senior advisers went further at a meeting with executives from Anadarko, ConocoPhillips, Occidental Petroleum Corp, Pioneer Natural Resources, Newfield Exploration and EOG Resources.
“One of the advisers said that OPEC would not take the hit for the rise in US shale production,” said a US executive who was at the meeting. “He said we and other shale producers should not automatically assume OPEC will extend the cuts.”
The Saudis called the meeting to exchange views on the market and to gauge the outlook for shale output, both sources said, speaking about the meeting on condition of anonymity due to the sensitivity of the matter.
A spokesman for Conoco declined to comment on the meeting. The five other US companies represented at the meeting did not respond to requests for comment. Saudi energy officials also declined to comment.
The meeting came after OPEC Secretary-General Mohammed Barkindo met with hedge funds and shale producers in Houston to widen talks on how to tame the global glut.
OPEC joined forces with Russia and several other non-OPEC producers last November and pledged to cut production by about 1.8 million barrels per day (bpd) for six months starting January 1st.
Falih said that global inventories had fallen more slowly than he expected in the first two months of the year, although oil market fundamentals were improving because of the curbs.
Oil prices plunged 5% on March 9th to their lowest levels this year after US crude inventories surged to a record high, in part because of rising output from shale producers. The price continued falling the next day,
The inventory rise stoked concern that the glut could persist because shale supply, along with more output from Brazil and Canada, could offset cuts by OPEC and some non-OPEC suppliers.
The US government expects US oil output to rise by 330,000 bpd in 2017, mostly from shale, but some analysts and producers forecast the increase could be more than double that amount.
OPEC next meets on May 25th in Vienna to discuss supply policy and is expected to decide whether to extend supply curbs implemented on January 1st.
Falih, Russian Oil Minister Alexander Novak, Mexican Deputy Secretary of Energy Aldo Flores, Iraqi Oil Minister Jabar al-Luaibi and Barkindo, at a joint news conference, said they were happy with compliance by the pact’s members.
Unlike the OPEC and non-OPEC state-run producers that have agreed to curb output, there is no mechanism for US independent producers and global oil majors to restrain output. Their imperatives are commercial and they produce as much oil as they can at profit. (Reuters)