OPEC ministers came to Houston this week for a “thank you” that never arrived.
Since OPEC and non-OPEC producers reached their historic supply cut agreement in December 2016, global oil prices have stabilized above $60/b and supply and demand are nearing the ever-elusive balance, ministers said during the CERAWeek by IHS Markit conference.
“Everybody benefited,” OPEC Secretary-General Mohammed Barkindo said, adding that the agreement put the industry back on a “path of sustainable growth.”
Barkindo said that producers who agreed to the cut “paid a very deep price” and added that the industry should “salute them for their courage.”
But OPEC ministers got a different response.
With Barkindo and many OPEC ministers in the building, US Interior Secretary Ryan Zinke preached US energy “dominance” and called US oil and natural gas production “morally better” than imports of OPEC and other foreign crudes.
“I want to thank you all of you for making American energy great again,” Zinke said. “It is better to produce energy in this country.”
Rather than showing gratitude or committing to further global market stability, the message from US producers and the Trump administration was clear: US peak output has yet to come.
“When you look five to 10 years out you could see the Permian Basin doing 6 [million] to 7 million barrels a day all by itself,” Texas Railroad Commissioner Ryan Sitton said in an interview with the Platts Capitol Crude podcast. “There’s that much oil there. It’s just a question of whether the economics are there to put in the infrastructure and development to go get it.”
Outside of initial speculation that many OPEC producers would fail to comply with their pledges, one of the biggest concerns with the supply cut agreement was that US shale production would undercut its intended result.
Saudi Energy Minister Khalid al-Falih tried to quell that concern at last year’s CERAWeek.
“I think the comeback of shale, to a certain degree, is not only welcome and acceptable but it’s necessary because of the demand growth and the decline elsewhere,” Falih said. “This is a big market.”
But did Falih underestimate US shale’s potential?
As OPEC and non-OPEC producers have cut, US producers have set output records, crossing the 10 million b/d mark in a record-setting November, up from 8.77 million b/d in November 2016. And US imports of OPEC crude have fallen too in the year since the supply cut agreement was reached, dropping to 2.6 million b/d in December 2017 from 3.3 million b/d in December 2016, according to the US Energy Information Administration.
There were some quiet grumblings at CERAWeek that the US was not doing enough to help the market.
“It’s not just a problem for OPEC, it’s a problem for the entire industry,” Emmanuel Kachikwu, Nigeria’s oil minister, told reporters.
While he declined to offer many details, Kachikwu said OPEC ministers are increasingly pressing the heads of US oil majors to take action to stabilize the global market.
It’s unclear what, if anything, US producers could do. Even if major producers decided to cut production, hundreds of independent producers would likely step in to fill the void.
Some US producers met with OPEC ministers Monday night on the outskirts of the Houston conference. The meeting was described as cordial, but OPEC did not push for anything, sources said.
“We are not talking about prices. We are not talking about production cuts,” Barkindo told reporters ahead of the meeting. “This is not the objective of the dialogue.”
Barkindo said ministers and US producers plan to meet again in Houston next year.
It’s unclear if the next meeting will be as cordial.
The post CERAWeek: As OPEC waits for appreciation, US ramps up oil production appeared first on The Barrel Blog.