Saudi Arabia wants oil prices to rise to US$60 a barrel this year – a level that would motivate new investments but will not encourage U.S. shale boomers to up production, according to OPEC sources quoted by Reuters.
This belief is questionable, however, since U.S. producers have been raising oil production ever since OPEC struck a deal to curb production in a bid to improve prices. In fact, according to most analysts, it is precisely this increase in U.S. crude output that has been acting as counter-pressure against hopes of a reduction in the global oil glut, keeping the oil price rise within tight limits.
The market has acknowledged OPEC’s surprisingly high compliance rate, which reached 90 percent as of the end of January, but even so, prices have failed to move much higher than US$55 for Brent, the international benchmark, and US$54 for West Texas Intermediate.
As Reuters noted earlier today, prices fell today, still trading within a narrow range of about US$3 a barrel. Meanwhile, according to Rystad Energy, the breakeven point for U.S. shale fell to an average of US$35 a barrel.
In the week to February 17, output in the shale patch exceeded 9 million bpd for the first time since last April, official data showed, supporting forecasts that shale boomers are determined to continue its growth, investing in new developments and continuing to work on reducing costs.
Further dampening Saudi Arabia’s – and its Gulf allies’ – hopes of oil reaching the coveted US$60 mark is the lower compliance rate among the 11 non-OPEC producers that also signed up for the production cut. To date, this rate is about 50 percent, which means that there is still about half a million extra barrels, according to some estimates, in daily global supply.
It seems that OPEC is aware of the downward pressures, with several officials suggesting the cut agreement might have to be extended into the second half of the year, suggesting six months will not be enough to restore the market to balance, despite great initial hopes. While an extension could push prices up, the increased output from shale producers makes $60 oil an ambitious goal.