The Atlanta Journal-Constitution
OPEC ponders how to bolster oil prices
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 U.S. 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 percent from a four-year high reached in early October. The Organization of Petroleum Exporting Countries and its allies are showing they’re worried, signaling 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, a consultant in Washington. The cartel looks sets to “put pedal to the metal to boost production, and then immediately slam the brakes pretty hard and talk about cutting supply.”
If group leader 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. The two countries have started consultations on the matter, state-run Russian news service Tass reported on Wednesday. There’s also the risk of antagonizing the kingdom’s key geopolitical ally, President Donald Trump.
All this is a far cry from the usual OPEC mantra of preserving stability and careful market stewardship. Yet it does reflect the level of uncertainty in a market experiencing huge shifts in supply and demand.
Earlier in the summer, Brent surged above $86 a barrel as the risk of production shortfalls from sanctions on Iran and Venezuela’s economic collapse rattled the market. Losses from those two OPEC members threatened the biggest supply disruption since the start of the decade.
Yet big things are happening on the other side of the supply equation too, meaning the risk of scarcity may not last. OPEC has been in “produce as much as you can mode” to reassure consumers, Saudi Energy Minister Khalid Al-Falih said in Riyadh last month. The kingdom has lifted output close to record levels, while Libya is pumping the most in five years.
Then there’s the small matter of U.S. production growing at the fastest rate in a century, just as fuel demand is at risk from the slowdown in emerging economies and the U.S.-China trade war.
Right now, global markets are “well supplied,” in the assessment of the International Energy Agency, which advises consuming nations. OPEC’s own projections show that next year the world will need about 1 million barrels a day less than the 31.8 million its 15 members pumped in September.