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article imageWorld oil glut may force OPEC to prolong curbs until 2018

By Karen Graham     May 19, 2017 in Business
When OPEC announced its first oil production cut in eight years in January, oil traders around the world began emptying their storage tanks of millions of barrels of crude, flooding the market. But, the expected end to the world oil glut is not happening.
It seems that the Organization of Petroleum Exporting Countries (OPEC) may be losing control of oil prices worldwide. OPEC ministers and their allies will be meeting in Vienna on May 25 to decide on extending their production curbs until May 2018.
Saudi Arabia and Russia, the world's two biggest crude producers and the ministers of the 22 OPEC member-countries have been trying their best to control crude oil prices, with OPEC members reducing output because of the three-year oil glut.
Readers may remember the joint statement made by Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak on May 15, when they said OPEC would "do whatever it takes" to bring global oil inventories back to five-year average levels, says the Nikkei Asian Review.
Fracking on the Haynesville Shale near Shreveport  Louisiana
Fracking on the Haynesville Shale near Shreveport, Louisiana
Flickr user Daniel Foster
OPEC didn't give U.S. shale enough respect
In the International Energy Agency’s (IEA) latest monthly report, estimated inventories in industrialized nations totaled about 3.025 billion barrels on March 31. That was 300 million barrels above the five-year average. The report, released on May 16, points out that a lot of work will still be needed if a balanced five-year average is to be realized.
The United States seems to be messing up OPEC's plans. Douglas Rachlin, the managing director at Neuberger Berman's Rachlin Group, said on Wednesday at the SALT Conference in Las Vegas that "Saudi Arabia and OPEC are no longer in control."
"The emergence of US shale as a key global player that can pump even during low oil prices means OPEC can no longer manipulate prices," Rachlin said, according to CNN. Money. "The shale revolution has changed a lot of things."
OPEC Headquarters in Vienna
OPEC headquarters in Vienna
Not too many people know, but OPEC is so rattled over U.S. shale production that they actually sent a plea to the U.S. earlier this month asking the U.S. to not pump so much oil. But U.S. oil producers are not paying any attention to the plea, and the number of rigs has more than doubled over the past year.
Basically, shale production has made the United States a swing producer, and President Trump has been most helpful to the petroleum industry in the U.S. "The administration has been incredibly supportive," Rachlin said, pointing to former ExxonMobil CEO Rex Tillerson becoming secretary of state and former Texas governor Rick Perry becoming energy secretary. As Rachlin says, "We have friends in high places today. I feel really good."
More about Opec, oil glut, Reserves, US oil production, nullifying any reduction
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