US shale oil production seems to be destabilizing crude oil prices. Oil prices will not stabilize as long as the US continues to fill the supply shortfall with shale oil. Igor Sechin, CEO of Russian oil company Rosneft Oil Co, stated this at the St. Petersburg International Economic Forum this week. Any agreed production cutback by OPEC members would have little effect due to America’s refusal to play ball.
This is not the only area in which the US is refusing to go along with the majority. However, it is an important one. The refusal to adhere to the Paris Global Warming Agreement is another. These decisions may bite the US where it hurts sometime in the future. OPEC oil production cutbacks will likely be negated by mid-2018 by the US shale oil production project.
The OPEC meeting of May 25 agreed to maintain the oil production constraints until early next year. The purpose of this decision was to clear a global glut of crude oil that is keeping oil prices down. OPEC’s allies, including Russia, have been sticking to the agreement – but not the US. That country is using the OPEC decision to strengthen its marketing position. US shale oil production is keeping oil prices down.
Sechin stated Friday that the measures agreed by OPEC and allies such as Russia have ‘given the market a breather.’ However, this is unlikely to lead to long term price stabilization. The US refusing to cut drilling production, and bringing large quantities of shale oil into the market, will negate OPEC’s efforts.
By 1119 am GMT, Brent crude had fallen 3.1%. This means that it has dropped 9% since the Vienna OPEC deal on May 25. The American refusal to reduce production has been responsible for maintaining the glut and keeping prices down. Rosneft has made the greatest output cuts under the deal. Consequently, the company has stated that it is not likely to maintain this. Rosneft will be unlikely to stick to the deal beyond the existing nine-month extension.
There may be moves ahead to consolidate the members of OPEC, and to make decisions binding. However, while the USA shale production industry does whatever it wants, the oil market will remain volatile.
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