Published: Tue, January 23, 2018
Markets | By Terence Owen

Saudi energy minister urges oil producers to extend cooperation beyond 2018

Saudi energy minister urges oil producers to extend cooperation beyond 2018

The recent uptick in oil prices is not likely to be enough to persuade to end production cuts this summer, Richard Mallinson, geopolitical analyst at Energy Aspects, told CNBC on Friday.

Saudi Arabia will be overtaken by the U.S. as the world's leading energy producer in the next twelve months according to the latest monthly report from the International Energy Agency (IEA).

On Tuesday, the EIA said it expected USA oil output to increase in February, with production from shale rising by 111,000 barrels per day (bpd) to 6.55 million bpd.

Over the last 3 months, Brent crude has gone from close to $55 a barrel to $70 a barrel, which is a good 27 per cent jump in price.

"Higher oil prices are bringing more supply to the market, particularly in North America and specifically tight oil", the report said, referencing a form of light crude often called shale oil.

Oil prices slid yesterday, putting them on course for the biggest weekly falls since October, as a bounce-back in USA production outweighed ongoing declines in crude inventories.

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"If prices remain high, it is USA shale producers who are benefiting more than the Opec producers but if Opec doesn't do anything, they will also lose out, so they are basically treading a thin line between helping themselves and helping everybody else including shale producers", Mr Manibhandu noted. "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".

At the same time, the cartel lowered its forecast for demand for its own crude in 2018 to 33.09 million bpd from 33.15 million bpd (although this still exceeds last month's average daily output of 32.42 million bpd). The "probability is growing" that the accord may conclude before the end of the year, said Harry Tchilinguirian, BNP Paribas SA's head of commodity strategy.

The United States is expected to take over Saudi Arabia and even rival Russian Federation as the world's leading energy producer, the International Energy Agency said on Friday.

The country is set for "explosive" growth, with cost discipline learned by the United States unconventional oil and gas industry following the price crash of late 2014 paying dividends now, the IEA said. West Texas Intermediate, the US benchmark for the price of oil, was down 0.16 percent to $63.87 per barrel. However, we believe that the OPEC as well as Non-OPEC members have already factored in the impact of the surge in USA shale output as a result of these output cuts while deciding their production quotas. The oil market still isn't fully re-balanced, though ministers from the Organisation of Petroleum Exporting Countries and allied producers agreed yesterday in Muscat that their cuts pact is working, he said.

"U.S. growth of 0.6 million barrels a day in 2017 beat all expectations, even with a moderate price response to the output deal as the shale industry bounced back - profiting from cost cuts, stepped up drilling activity and efficiency measures enforced during the downturn", the group said.

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