Opec is drowning in shale oil

Try as it might, says Alice Gråhns, oil cartel Opec just can't seem to mop up the oil glut.

850-oil-634
A three-year glut, but the oil keeps pumping

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.

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".

Recommended

What escalating tension between Iran and the US means for oil prices
Global Economy

What escalating tension between Iran and the US means for oil prices

The tension between the US and Iran is unlikely to mean all-out war in the Middle East. But markets may be getting a little too complacent about its e…
6 Jan 2020
Rising output will keep a lid on the oil price
Oil

Rising output will keep a lid on the oil price

Oil exporters’ cartel Opec gave further encouragement to the bulls this month after agreeing to new production curbs.
20 Dec 2019
How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Brace yourself for pricier oil
Oil

Brace yourself for pricier oil

Global growth, and hence demand for oil, could surprise on the upside next year, leading to a bounce in the oil price.
29 Nov 2019

Most Popular

The rising dollar is proving bad news for most other assets – will it last?
Investment strategy

The rising dollar is proving bad news for most other assets – will it last?

Precious metals, stocks and pretty much every other asset has taken a tumble as the US dollar strengthens. Dominic Frisby looks at how long this trend…
23 Sep 2020
The electric-car bubble could get an awful lot bigger from here
Renewables

The electric-car bubble could get an awful lot bigger from here

The switch to electric cars is driving a huge investment bubble. But that’s not necessarily a bad thing, says John Stepek. Fortunes will be made and l…
24 Sep 2020
Why you should stuff your end-of-pandemic portfolio with Chinese stocks
China stockmarkets

Why you should stuff your end-of-pandemic portfolio with Chinese stocks

For an end-of-pandemic portfolio, you need assets that can cope with today’s volatility. And that, says Merryn Somerset Webb, means Chinese stocks.
14 Sep 2020