Ed­i­tor’s let­ter

Trump might not like it, but OPEC+ pro­duc­tion cuts, and higher oil prices, are good news for US shale pro­duc­ers

Oil & Gas Middle East - - CONTENTS -

Carla Sertin with her thoughts on oil price fluc­tu­a­tions, out­put cuts & the tweets they in­cite...

It has been an in­ter­est­ing if slightly un­pre­dictable year for the oil mar­ket; oil prices rose above $80 per bar­rel, and fell be­low $60 per bar­rel. OPEC out­put was boosted, and then cut. Geopo­lit­i­cal ten­sions rose, and then dis­si­pated.

US Pres­i­dent Don­ald Trump, for his part, has cer­tainly been a key factor in the oil mar­ket this year, even if he will not take credit for it.

When the US an­nounced the re­in­state­ment of sanc­tions against Iran, tak­ing a hard-line stance that it would not of­fer any ex­emp­tions, spec­u­la­tion about a sup­ply short­age hit the mar­ket and helped push prices to four-year highs in Oc­to­ber.

Trump blamed OPEC for the price hike, us­ing his favourite tool: Twit­ter. In June, OPEC agreed to boost pro­duc­tion to fill a po­ten­tial sup­ply gap. But when the Trump ad­min­is­tra­tion is­sued eight waivers sur­round­ing sanc­tions, and its shale pro­duc­tion started to ramp up, oil mar­kets were start­ing to look over­sup­plied, and oil prices dropped.

Trump took to Twit­ter to ex­press his joy, call­ing the price drop a “big tax cut for Amer­ica and the world,” and thank­ing Saudi Ara­bia while ask­ing it to “go lower” on oil prices. It is un­char­ac­ter­is­ti­cally hum­ble of Trump—whether or not his ac­tions this year were strate­gi­cally placed to force a drop in prices be­fore Novem­ber midterm elec­tions, he cer­tainly holds some of the re­spon­si­bil­ity for the re­cent drop in oil prices.

But how low does he want prices to go? In 2013, he tweeted that “oil should not cost more than $40 a bar­rel. Ideally it should be $25,” cit­ing that it is “cheap to pro­duce.”

De­spite the fact that the Trump ad­min­is­tra­tion’s do­mes­tic reg­u­la­tions have pro­moted the coun- try’s en­ergy in­dus­try, and Trump fre­quently boasts about US out­put lev­els, ex­tremely low oil prices would hurt shale pro­duc­ers, a pil­lar of his sup­port base. US shale pro­duc­tion rev­o­lu­tionised the oil mar­ket pre­cisely be­cause op­er­a­tors could ex­tract hy­dro­car­bons at a low cost, break­ing even at crude prices of around $50 per bar­rel in the Per­mian Basin.

An­a­lysts say prices close to $45 per bar­rel would put a strain on US pro­duc­ers. With WTI crude (the US bench­mark) at $51 per bar­rel, as of writ­ing, that doesn’t leave pro­duc­ers with much of a mar­gin.

Prices at the gas pump are a key is­sue for US vot­ers, but with US pro­duc­tion at a record 11.7mn bpd, it will be in­ter­est­ing to see how his ad­min­is­tra­tion bal­ances the needs of shale pro­duc­ers with those of other vot­ers look­ing for a dis­count at the pump.

US crude pro­duc­tion is ex­pected to av­er­age more than 12mn bpd in 2019, ac­cord­ing to the En­ergy In­for­ma­tion Ad­min­is­tra­tion. With grow­ing pro­duc­tion, the US could even­tu­ally shift from net im­porter to net ex­porter.

We might some­day see the US among OPEC’S ranks, and then, per­haps, the tweets will be much sweeter.

Carla Sertin

Ed­i­tor, Oil & Gas Mid­dle East [email protected]

THIS IS­SUE: We talk to Sch­nei­der Elec­tric’s en­ergy pres­i­dent about its work to digi­tise ADNOC (p18).

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