Although oil prices still remain much lower than where they were one year ago, the Organisation of the Petroleum Exporting Countries (Opec) is unlikely to cut production soon to shore up the market.
Analysts believe the 12-member Opec at its June 5 meeting may maintain output and keep global markets amply supplied. In such a situation, crude prices are unlikely to scale up, which then will push high-cost shale oil producers, mainly in the US, to cut production.
Saudi Arabia, the largest of the oil producers, has formulated a strategy late last year, which favours market share over prices. This strategy, followed by the Opec has had some results in that the high-cost shale producers have started to buckle under low oil price.
Opec decided in November last year not to cut output amid a price slump resulting from a global supply glut driven by sluggish demand and rising US shale production.
Saudi Arabia led the group to keep its target at 30mn barrels per day, overcoming objections mainly from cash-strapped Iran and Venezuela, which wanted Opec to reduce output to support prices.
US oil producers idled more than half of the country’s drilling rigs since October, according to data from Baker Hughes. The nation’s crude production fell 1.2% to 9.3mn barrels a day last week, the biggest drop since July, Energy Information Administration (EIA) data show.
Global investment in oil production might fall by $100bn this year, according to the Paris-based International Energy Agency (IEA).
Latest report indicate prices rose by about $20 since mid-January as producers cut spending plans and the number of active US drilling rigs fell by the most ever.
Opec has been able to ward off calls to cut oil production and prop up prices, but reports show it was not unanimous in deciding on their output.
Iran, along with Venezuela, has repeatedly called for Opec to cut output to shore up low prices that have eaten into producers’ crude oil.
In June, Iran is likely to push for output reduction or cooperation on the right amount of oil to be delivered to the market.
Demand growth will accelerate to 1.3mn to 1.4mn barrels a day this year, Chris Bake, an executive director at Vitol Group, the world’s largest independent oil trader, said at a conference in London last week.
Lower prices and economic growth increased demand in Europe, the Middle East and India, he said. Global oil demand rose 700,000 barrels a day last year, according to the IEA.
“Opec doesn’t really have a need to change course,” said Francisco Blanch, Bank of America’s head of commodities research.
“The strategy has achieved its goal of reining in supply and stimulating demand,” he said.