Crude price slump spurs talk of another Opec U-turn

The Organisation of Petroleum Exporting Countries (Opec) is enduring one of the most head-spinning years in its history, swerving from cutting oil production to boosting it as quickly as possible. It may need to reverse course again. Saudi Arabia and other producers gathering in Abu Dhabi this weekend face a worrying prospect: Even though US sanctions on Iran are removing significant amounts of crude from world markets, a fresh surge of American shale oil threatens to unleash a new surplus in 2019.

Crude prices already reflect these concerns. Brent for January delivery has retreated about 17 per cent from a four-year high reached in early October. Opec and its allies are showing they’re worried, signalling last month that they might need to dial back near-record output levels.

“The message from Opec looks like: fasten the seat belts,” said Bob McNally, president of Rapidan Energy Advisors LLC, a consultant in Washington. The energy bloc looks sets to “put pedal to the metal to boost production, and then immediately slam the breaks pretty hard and talk about cutting supply.’

If Saudi Arabia does ultimately decide fresh cutbacks are necessary, it will confront a number of challenges. It will need to once again secure the support of rival-turned-partner Russia, which has less need for high oil prices. There’s also the risk of antagonising the kingdom’s key geopolitical ally, US President Donald Trump.

All this is a far cry from the usual Opec mantra of preserving stability and careful market stewardship.

Shale has plenty of potential to surprise. The US is already poised to satisfy most of the increase in global oil demand next year, the IEA forecasts. In August, a surprise surge in output meant the country briefly overtook Russia as the world’s biggest crude producer, with output of 11.3 million barrels a day.