EghtesadOnline: A reinvigorated shale oil industry and higher supplies from other producers will continue to keep prices in check, Hossein Amiri-Khamkani, a member of Majlis Energy Commission, said.
Global benchmark Brent crude settled at $48 per barrel in the last trading session on Friday on the back of a weeklong rally, but oil is conspicuously struggling to reach higher altitudes as production is gaining momentum worldwide.
Khamkani, a lawmaker from Kerman Province, expects a difficult year for the market, Majlis news portal ICANA reported on Sunday.
“Following a decision by OPEC and other producers to extend a global supply cut deal, some producing nations, including the US, Canada, Libya, Nigeria and Brazil, signaled their plans to boost production,” Financial Tribune quoted him as saying.
Shale producers look set to flood the already oversupplied market while new supplies elsewhere are undermining the OPEC-led crude cuts and putting strains on the 14-member organization.
“If the current situation persists, we should expect a difficult year for oil, particularly OPEC members,” Khamkani said.
In May, 13 members of the Organization of Petroleum Exporting Countries and 11 other producers extended an agreement to cut production by 1.8 million barrels day by nine months to March next year.
But the announcement did not bode well for crude prices, as some experts said global markets are expecting more producers to join the pact.
Khamkani said OPEC and its partners, such as Russia, need to announce deeper cuts to raise price but that seems unlikely.”
Oil is trading at more than half its peak levels three years ago. Market analysts say the era of “expensive oil” is a thing of the past because a more expensive crude would spur producers, such as players in the shale industry, to raise production and consequently offset any price gains.
“The US plans to add 1 million barrels to daily output by next year or perhaps as much as 1.5 million bpd, almost equal to the volume of OPEC-led cuts,” Khamkani said.
According to government data, US oil output shot up from 4.7 million barrels per day in October 2008 (around the current production level of OPEC’s second-largest producer Iraq) to a peak of 9.6 million bpd in April 2015.
Shale oil supplies reached 9.1 million barrels a day in March, but output is expected to break beyond 10 million bpd before the year is out.
Also weighing on prices is a rebound in Nigeria and Libya’s output, Africa’s largest oil producer and the country with the largest oil reserves in the continent.
Nigerian output is expected to rise in coming weeks with exports in August scheduled to reach at least 2 million bpd, a 17-month high.
In Libya, output was on average higher despite fluctuation and has now exceeded 1 million bpd, a four-year high. Production remains short of the 1.6 million bpd Libya pumped before its 2011 civil war.