OPEC, Russia Deal to Frustrate Huge U.S. Shale Output

• OPEC, Russia Deal to Frustrate Huge U.S. Shale Output

Russia and Middle Eastern oil producers want to keep oil prices between $50 and $60 per barrel, RBC Capital Markets said at the weekend.

It added that supply from the United States (U.S.) remained real problem for the Organisation of Petroleum Exporting Countries (OPEC).

Drop in U.S. fuel inventories forced oil price to climb above $52 per barrel on Friday amid plans from OPEC and major non-OPEC producers for a supply freeze agreement to help stabilise prices.

Managing Director/Global Head of Commodity Strategy at RBC Capital Markets, Helima Croft, said: “I think that Saudi Arabia, OPEC and the Russians hope that some U.S. production will come back but $50 to $60 is probably not enough to resurrect the entire U.S. shale complex.

“I don’t think they are aiming for $70 to $80, because I don’t think they want to bring it all back.” Croft told CNBC at the weekend that Russia and the Middle East want a “steady grind higher, not a gallop” in terms of prices.

With oil prices above $70 per barrel production from shale will be economic and profitable but at $50 per barrel, oil production from shale would be uneconomic.

In their most recent note RBC capital markets see WTI and Brent averaging $51 per barrel and $53 per barrel over the rest of this year, before increasing to $56.50 per barrel and $59 per barrel on average next year.

November’s OPEC meeting is seen as the forum where a supply freeze deal will stand or fall. RBC’s Croft said it will be down to Saudi Arabia whether anything meaningful is achieved.

“Almost all these other countries are basically maxed out and really it will have to be the Saudi’s and the GCC (Gulf Cooperation Council) who takes the cut,” she said. “If the Saudi’s incentivise the deal, I think it gets done,” she added.

And on fears that Libya will ramp up supply to previous levels, Croft said political turmoil in the country would prevent that happening. “Libya has three governments at the moment; there are 100 militias in Tripoli. The country is awash with weapons. It’s like asking Somalia to get their act together,” she said.

OPEC’s output has increased with Iran’s crude oil production reaching 3.665 million barrels per day in September, OPEC said in a monthly report published on October 12.

OPEC crude oil production averaged 33.39 million barrels per day (mb/d) in September, increasing by 0.22 mb/d over the previous month, according to secondary sources.

Crude oil output increased mostly from Iraq, Nigeria and Libya, while production in Saudi Arabia showed the largest drop. Iran has repeatedly stated that it plans to increase oil output to 4 million barrels per day by March next year.

Iran has the fourth largest oil reserves and the largest natural gas reserves in the world, while the country is also the third largest exporter of oil in the world and has nearly doubled since sanctions were lifted on its oil exports in January 2016. In fact, Iran is recovering market share faster than many experts had expected.

China and India are looking to further lock down Iranian supply, with a large planned investment in Iran’s oil and gas infrastructure. Iran is seeking $130 billion worth of investment to bring its energy sector up to date after years of sanctions, Reuters reported.