Budget 2018: Create level playing field for domestic crude producers

Gladys Abbott
January 23, 2018

The U.S.is poised to overtake Saudi Arabia and Russian Federation as the largest oil producer in the world by 2019, the International Energy Agency (IEA) said Friday, APA reports quoting Anadolu Agency.

"We will see compliance drop in the second half of the year (so) they are going to want to really cement the gains they have made and the rebalancing they have achieved", he added. OPEC's reluctance to cut output was also seen as a key reason behind the fall.

IEA analysts believe that steady OPEC production must be treated with caution.

In November 2016, when OPEC members agreed to cut production for the first time since the Great Recession, it was welcomed with great optimism and oil price jumped more than 20 percent, from $45 per barrel to as high as $55 per barrel (WTI). The Trump administration has threatened to impose new sanctions against Iran, while popular protests there could embolden regional foe Saudi Arabia, "now backed to the hilt by a seemingly bellicose-minded USA president, into doing something really silly".

I can tell you that it isn't a problem with US oil production.

Baker Hughes (BHGE) on Friday reported that the number of active oil-drilling rigs (http://www.marketwatch.com/story/baker-hughes-reports-a-weekly-decline-in-the-us-oil-rig-count-2018-01-19) fell by 5 to 747 this week, though that followed a rise of 10 rigs a week earlier.

The OPEC+ global monitoring commission says the earlier decision to extend the production cut deal for the current year should remain unchanged, Russia's Energy Minister Alexander Novak told reporters on Sunday.

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As a result, oil prices have recently moved above the $70 mark, after hitting a 10-year low of less than $30 in January 2016.

United Arab Emirates Energy Minister Suhail Al-Mazrouei said in a speech that global inventories are 118 million barrels above their historical five-year average, and the positive trend in Opec's compliance over the past five months will help to balance the market quickly.

Inventory levels, not just in the US but around the globe, are going to continue to shrink, very quickly. However, rising oil prices may cast a shadow on some of these expectations, particularly on margins, according to analysts.

Brent crude futures dipped 0.1% to $69.33 per barrel.

"Shale producers in the U.S. have managed to lower their break-even costs by 30-50% in 2015-17, by improving technology and efficiency and as oil field service providers offered deep discounts on rigs and crews to retain their share of a shrinking market", it added. "The general perception that the market has been tightening is clearly the overriding factor and, within this overall picture, there is mounting concern about Venezuela's production".

Meanwhile, OPEC has raised its forecast for oil supplies from countries that are not members of the cartel.

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