UAE CALLS ON US SHALE PRODUCERS TO SHOW RESTRAINT
▶ Energy minister stresses Emirates’ commitment to Opec+ alliance
US shale producers should show restraint amid higher oil prices, according to the UAE’s Minister of Energy and Infrastructure, who stressed the country’s commitment to the Opec+ alliance.
“The producers need to be careful not to flood the market,” Suhail Al Mazrouei told the Gulf Intelligence Global UAE Energy Forum 2021 yesterday.
“I think they are wise not to jump the gun and overproduce during the recovery.”
US shale looks set for a recovery this year as oil prices have surged by 10 per cent since the year began.
International benchmark Brent fell 0.48 per cent to trade at $56.31 per barrel at 8.27pm UAE time. West Texas Intermediate, which tracks US crude grades, was down 0.11 per cent at $53.15 per barrel.
US shale producers suffered in 2020 as a demand slump induced by Covid-19 led to an increase in bankruptcies.
However, the sector is expected to become profitable as prices rally at 11-month highs, the International Energy Agency’s executive director Fatih Birol said on Tuesday.
Opec+, the 23-member producer alliance led by Saudi Arabia and Russia, is drawing back 7.2 million barrels per day for three months until March.
Saudi Arabia made a surprise and unilateral decision to commit to a 1 million bpd cut during February and March.
The decision, which supported the rally in prices, is to partly compensate for production increases by Russia and Kazakhstan. Moscow and the former Soviet state will collectively add 75,000 bpd, largely to meet winter power requirements in both countries.
Mr Al Mazrouei dismissed the idea that the decision to allow Russia and Kazakhstan to raise production pointed to a lack of cohesion among Opec+ producers.
He said the decision had been reached by all members of the bloc “and I think Saudi Arabia, with generosity, has put enough volumes to compensate for that”.
Mr Al Mazrouei said the producers were “all convinced, rather than pushed”.
Opec+’s deeper production cuts have continued to support prices despite widespread lockdowns in several OECD countries. A softer dollar has also helped to push crude benchmarks higher, with commodities entering a “super cycle” amid optimism over a larger stimulus package in the world’s largest economy.
“With the US dollar no longer acting as a headwind, these currencies have capitalised on gains in commodities, notably in oil prices,” said Stephen Innes, chief global strategist at Axi.
He said the current levels presented an “increasing risk” to the oil market due to an expected response from US shale.
Opec+ is expected to continue restraining oil supply until Covid- 19 vaccination programmes are more widespread, the Bank of Singapore said in a note yesterday.
The bank revised its 12-month forecast for Brent from $56 to $62 per barrel.
A “winter surge” in Covid-19, which has affected more than 92 million people globally, is expected to subside by spring.
Saudi Arabia can be expected to increase production to cap prices in a move aimed at preventing the influx of US shale in the market, the lender said.