OPEC Pact on Global Oil Output Cuts, Likely to Spur Drillers in the West

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(Image Courtesy: Alamy)

With the global oil output cuts that OPEC and other producers have agreed to extend until the end of 2018, will mean higher prices for US shale drillers, who have not been shy about hiring more rigs or flooding global markets with more cargoes.

After climbing out of a crater dug by the worst oil-market collapse in a generation, North American explorers probably will boost spending by 20 per cent next year, according to an Evercore ISI survey of industry budget trends. That would follow an estimated 41 per cent jump in 2017.

The nine-month extension was strengthened with the inclusion of Nigeria and Libya, two OPEC members originally exempted from the curbs. “Oil stockpiles in developed countries are still 150 million barrels above a five-year average, leaving OPEC and its allies with more work to do,” Saudi Arabia’s energy minister Khalid Al Falih said Thursday.

Saudi Arabia and Russia displayed unprecedented unity in Vienna on Thursday with Al Falih saying that he and his Russian counterpart Alexander Novak stood “shoulder to shoulder”. The show of friendship sought to dispel fears flagged by Wall Street analysts about Moscow’s reluctance to keep its side of the bargain in the absence of an exit strategy for the deal.

“Thursday’s meeting established a very firm confidence in the market that the cooperation between Saudi Arabia and Russia specifically and their agreement is no fly-by-night and it is here to stay,” said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo.

Besides, countries like Kazakhstan may also find it hard to comply with the global oil output cuts, as it had planned to increase production. Kazakh Energy Minister Kanat Bozumbayev said on Tuesday, “I can tell that doing this will be rather complicated for us.

Bozumbayev did not say by how much Kazakhstan might exceed its quota, of just less than 1.7 million barrels per day (bpd) that is allowed under the deal. The former Soviet republic reports its output in tonnes rather than barrels, and that has at times made tracking its compliance tricky.

Calculations based on a conversion ratio given by the ministry showed that its average output in January-October was about 34,000 bpd above its quota according to the OPEC-led deal.

Sea News, December 5