By Nigar Abbasova
Although members of the Organization of the Petroleum Exporting Countries and other major producers are sticking to their agreement to curb oil output, prices for crude continue to lose ground due to signs of further growth in U.S. output.
U.S. production not only threatens to undermine efforts by OPEC and other producers to ease the global glut of crude, but concerns over the threat of losing market share to North American producers could also undermine future cooperation within the cartel.
Thus, many see the U.S. output as the Sword of Damocles hanging over prices, while OPEC data on record-setting compliance in the first month of a deal to reduce crude supplies are deemed to be a real “gift” to American shale producers.
With oil fundamentals like OPEC cuts and active U.S. drilling dominating in the market, crude prices were stable on February 14 with Brent crude futures trading at $55.63 per barrel, and its U.S. counterpart West Texas Intermediate (WTI) standing at $52.97 per barrel. Both contracts recorded an increase of 4 cents from their last settlement, Reuters reported.
The data revealed by OPEC on February 13 showed that the group set a record-setting compliance. In January, OPEC production decreased by 890,000 barrels per day (bpd), to average 32.139 million bpd.
OPEC’s closely-watched monthly report, the first data since the deal come in force, showed that top producer Saudi Arabia made a large cut in its crude output (reduction of 496,200 bpd), accounting for a lion’s share of reductions. The runner up is Iraq, which cut its production by 165,700 bpd. The UAE is also among the contributors with the reduction of 159,300 bpd.
However, output cuts of the giant producers were partially offset by production increases by cut-exempted Nigeria, Libya, and Iran that increased production up by 101,800 bpd, 64,700 bpd and 50,200 bpd respectively. Year-on-year, world oil supply declined by 460,000 bpd, according to the report.
Some analysts say oil producers will have to reduce production more quickly to drain the global oversupply this year.
Meanwhile, on the back of oil prices that are hovering over $50 a barrel, U.S. energy companies boost drilling operations providing a growing source of concern for the market.
Over the past month, U.S. oil drillers have added the most drilling rigs since 2012, bringing the total to 591 rigs, the highest since October 2015, according to Baker Hughes.
U.S. shale oil production is expected to rise in March by 80,000 barrels per day to 4.87 million bpd, according to the data from the U.S. Energy Information Administration.
With numbers like those coming from the U.S., worries about market share are likely to resurface, which in turn may push major producers to refuse from the cut deal.
The market may see a decline in OPEC quota compliance as members of the cartel will begin to get frustrated about losing market share.
Nigar Abbasova is AzerNews’ staff journalist, follow her on Twitter: @nigyar_abbasova
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