Opec is drowning in shale oil

Opec, the oil-exporters' cartel, has been trying to boost oil prices by cutting output and thus mopping up a three-year glut. But it "keeps running into an uncomfortable fact", says David Sheppard in the Financial Times. "Rival crude supplies are proving stronger than they ever feared."

Opec and other oil producers agreed to cut production last year, and opted last month to keep the curbs in place. They have been claiming that a rebalancing of the market is under way, but in recent weeks US stockpiles have risen, and shale production is on the up.

The International Energy Agency (IEA) estimates that total non-Opec production in 2018, led by America, is set to rise by 1.5 million barrels per day (mbpd), or twice 2017's rate of output growth. Shale will comprise half the increase. And "such is the dynamism of this extraordinary industry" it has adjusted to lower prices with lightning speed "it is possible that growth could be even faster", reckons the IEA.

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And there's another headache for Opec to deal with. Opec countries Nigeria and Libya, exempt from the supply-cut deal, have boosted output of late, offsetting the cartel's curbs. The upshot? Opec produced 32.1mbpd in May, compared with 31.8mbpd the month before.

Both these states are politically volatile, and there is no guarantee they will keep pumping at recent levels. But if they do, Opec may have to attempt deeper cuts if it wants to safeguard its credibility. Opec and its allies, concludes Sheppard, "are now essentially in a race against time to show they can mop up the excess".