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How could OPEC drown US shale in its own success?

Oil&Gas Materials 16 January 2018 09:49 (UTC +04:00)

Baku, Azerbaijan, Jan.16

By Leman Zeynalova – Trend:

Possible overheating of the oil market could be beneficial for OPEC, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and SVP MEA-Risk, told Trend.

The expert pointed out that first, he currently doesn’t see market overheating, but in the case it happens, OPEC will need to keep on course and react to the market in a rational way.

“Any higher prices (Iran, Venezuela, etc) will be countered by higher production from US and if needed from OPEC-Russia. Additional volumes are available to counter a total blackout of Iran and some others even,” noted Widdershoven.

He believes that for OPEC, a possible overheating could even be a blessing in disguise.

“Having higher oil prices (and possible gas too) will attract new investments to shale oil. This money, in the end, an old saying, can only be spent once. Having a total financial flow into shale will increase production volumes on short term. This will lead to price pressure if not countered. For OPEC it could be positive not to act, drowning shale oil in its own success, having debt levels go up to new records, and then have prices come down a bit, hitting their adversaries very hard. A second melt-down in US shale will be bloodshed again, relieving OPEC from some of its adversaries without costing them anything,” said the expert.

OPEC and several other non-OPEC producers have reached an agreement to extend the production deal for a further nine months. This would shift the expiration date of the agreement from March to the end of 2018. The agreement is on the same terms as those agreed in November 2016.

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Follow the author on Twitter: @Lyaman_Zeyn

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