Suspension of US shale, Russian deep-water oil outputs not expected

Baku, Azerbaijan, Dec.4

By Dalga Khatinoglu - Trend: Oil prices have tumbled by a third since summer, but none of oil producers have cut crude production yet.

The U.S. crude futures settled up 50 cents at $67.38 per barrel on Dec.3, while OPEC oil basket stood at $68.13 on Tuesday according to the latest updates on the Cartel's official website.

Among the most vulnerable producers, it was expected that Russian operative deep-water oil fields as well as American shale oil with its high production costs would cut output when prices went below their break-even cost.

However, Russia announced earlier that it would keep crude oil production level unchanged even if the price on a barrel of oil fell to $60. On the other hand, and only 4 percent of the U.S. shale production needs above $80/barrel oil prices to be profitable.

The International Energy Agency estimated that most the U.S. "tight oil" production -in the Bakken formation, one of the main drivers of shale oil output- remains profitable at or below $42 a barrel.

As the EIA estimated, the U.S. shale oil (tight oil) production soared in 2012 and the growth rate is expected to reach one million barrels per day next year.

Sohbet Karbuz, Director of Hydrocarbons, France, Mediterranean Energy Observatory (OME) told Trend on Dec.4 that Russia has to continue producing the same amount because it has to. Due to western sanctions, the rubble depreciated 30%, access to financing is becoming increasingly difficult with zero economic growth expected next year, pushing the country's economy into a corner.

Karbuz says that in the US large amount of shale oil production is still profitable under current prices. According to him, they still have to fulfill their commitments. "We cannot expect them to stop their activities immediately just because prices went below their break-even cost. It will take some time".

Separation among OPEC members

The 12-nation Organization of Petroleum Exporting Countries (OPEC) kept its output target unchanged at 30-million barrels per day during a meeting held on Nov.27.

Despite the ceiling level of 30 mbpd by OPEC, 12 members of this cartel produced 30.253 mbpd in October, according the OPEC's latest monthly report. This is while OPEC says that the demand for OPEC crude is estimated at 29.5 mbpd in 2014. In 2015, the figure is estimated to reach 29.2 mbpd.

Saudi Arabia as the biggest OPEC producer, which shares one third of the Cartel's output, isn't keen to keep oil production low in attempts to protect their share in international markets.

Karbuz believes that in fact, when we talk of OPEC, we indeed really talk about Saudi Arabia.

"They are the one who shape OPEC decisions and they are the heaviest weight in determining the direction of the oil prices. With its latest action Saudi Arabia wants the make sure that this issue is plated on the brains of other OPEC members. This is also a warning to the other members that if Saudi Arabia decides later to a production cut the others must obey it. In other words, Saudi Arabia is showing its stick to achieve OPEC discipline."

The IMF has estimated Saudi Arabia will need an average oil price of $90.70 a barrel in 2015 to balance its budget, however, Anne Korin an adviser to the United States Energy Security Council told Trend on Dec. 3 that "Saudi Arabia has about $750 billion in cash reserves, which explains their willingness to tolerate a lower price.

However, for some other OPEC members like Iran, the low oil price is a real catastrophe.
Iran has set the yearly budget based on 100/barrel oil price and Iran's fiscal year will end on March 20, 2015, about three months later than the Gregorian calendar.

Iran needs $50 billion investment in its upstream sector to increase oil output to a target of 5.7 million per day. Iran is producing about 3.3 million barrels of crude oil, condensate and NGLs, of which 1.1 million barrels per day is being exported.

Karbuz noted that for OPEC basket price to damage the members' upstream projects it would have to still go further down because development and production costs are low compared to (deep) offshore, shale and tar sands.

"However, we should keep in mind that upstream projects are long term projects and sanctioning of those projects depend more on the expected oil price in the future and ability to finance the project and ability to access the financing today. Currently the biggest uncertainty is about the duration of the low or falling oil price environment. If prices don't recover back to the three digit number then we could talk about damage to upstream projects," he said.

Edited by CN

Dalga Khatinoglu is an expert on Iran's energy sector, head of Trend Agency's Iran news service
Follow him on @dalgakhatinoglu

Araghchi arrives in Vienna to attend 4th round of JCPOA talks
Araghchi arrives in Vienna to attend 4th round of JCPOA talks
Iraq commits to return Iran's debts
Iraq commits to return Iran's debts
Iran expects sanctions to be lifted soon - President Rouhani
Iran expects sanctions to be lifted soon - President Rouhani
Loading Bars
Russia continues analyzing situation around possible Putin-Biden summit — Kremlin
Number of COVID-2019 cases across globe up by over 839,000 in past day — WHO
UK records another 2,490 coronavirus cases, 15 deaths
Azerbaijan, 10 other OSCE countries call to prevent Nazi glorification - joint statement
"You are free, dear Shusha!" - this May 8 we are in Shusha
Azerbaijani wrestler Alice Manolova wins license for 2020 Summer Olympics in Tokyo
Iran's CBI warns people of losses of trading cryptocurrencies
Large-scale Covid vaccination sites to be set up in 4 main cities of Georgia
New daily COVID-19 cases in Turkey drops to 20,107
Azerbaijani FM holds meeting with ADB Director for Azerbaijan (PHOTO)
Difficulty of my exercises at World Cup in Baku higher than in two previous competitions - Azerbaijani gymnast Arzu Jalilova
Biden says he’s confident in one-on-one meeting with Putin
Azerbaijani embassy denounces decision of Latvian parliament on events of 1915
Kazakhstan boosts goods import from Denmark
Georgian State Electrosystem plans to issue bonds
Establishment of free trade zone in Iran's Ardabil Province to improve trade - MP
Chief of ADB's Energy Sector Group unveils details on ADB Draft Energy Policy
Azerbaijani team express satisfaction for participating in Rhythmic Gymnastics World Cup
Azerbaijani team in group exercises reaches final of Rhythmic Gymnastics World Cup in Baku
Revenues from customs duties increase in Azerbaijan
Austrian IT company discloses volume of entire internet traffic accounting for people in 2020
Azerbaijan's 4M2021 revenues from State Customs Committee unveiled
Azerbaijan almost doubles export of aluminum
Azerbaijan partially resuming traditional form of education
Armenia experiences continuous population decline
EU to continue activity in Azerbaijan in field of green economy - Head of EU delegation
Head of EU Delegation to Azerbaijan talks possibilities of resuming int'l travel
Group teams perform at National Gymnastics Arena as part of Rhythmic Gymnastics World Cup in Baku (PHOTO)
Azerbaijan names finalists in exercises with ball within Rhythmic Gymnastics World Cup in Baku
Azerbaijan names finalists in exercises with hoop within Rhythmic Gymnastics World Cup in Baku
Rhythmic Gymnastics World Cup in Baku - results of performance of Azerbaijani gymnasts in exercise with hoop and ball (PHOTO)
Italian gymnast talks about friendly relations with Azerbaijani gymnast
Best moments of first day of Rhythmic Gymnastics World Cup in Baku (PHOTO)
World Cup in Baku - most long-awaited competition, says Lithuanian gymnast
WB plans to issue loan for road project in Azerbaijan
Georgian SME program aims digitization and environmental initiative to address climate change
Georgia to build enterprise for production of cleaning and detergents
Presidents of Uzbekistan, Russia consider strengthening of strategic partnership
Trade turnover between Uzbekistan and Belarus significantly increases
Hungarian lab confirms reliability of Sputnik V jab delivered to Slovakia
France's Macron: Vaccine patents not the issue, it's getting jabs out files for Wall Street IPO
Georgia, Ukraine emphasize European and Euro-Atlantic integration aspirations
Organizing committee of World Cup in Azerbaijan’s Baku doing its job perfectly - Hungarian gymnast
Hotel price index up in Georgia for April 2021
Qatar Airways to resume flights from Doha to Baku soon
Uzbekistan reveals financial performance of Uzbek mobile operators
Iran's sees increase in petrochemical exports
Indian Embassy in Baku introduced a new Sanskrit learning App, ‘Little Guru’ (PHOTO)
Azerbaijan discloses number of views of President Aliyev’s interview on Twitter (VIDEO)
Azerbaijan shares data on number of vaccinated citizens for May 7
Azerbaijan issues data on 1Q2021 export of fruits, vegetables
Azerbaijan confirms 722 more COVID-19 cases, 1,854 recoveries
Iran-Syria trade increases - Chamber of Commerce
Heydar Aliyev Foundation to organize legendary Khary Bulbul music festival in Shusha
Azerbaijan State Security Service talks arrest of illegal armed groups' members
VISA, Central Bank of Azerbaijan sign agreement on development of non-cash payments in Azerbaijan
Pakistan PM Khan in Saudi Arabia to discuss relations
Georgian Formula Construction exports building materials to Lithuania
Firefighters tackle blaze at 19-storey London tower block
Iran increases amount of jobs in free economic zones
Azerbaijan creates best conditions in National Gymnastics Arena - Uzbek gymnast
Greece, Estonia have biggest decrease in CO2 emissions from energy use
Iran says no need for direct or indirect talks with US
Georgia sees increase in international visitors
AzerGold discloses results of tender for software installation
Highest rate of inactive loans recorded in Georgian Cartu Bank
Russia documents 8,386 COVID-19 cases in past 24 hours
U.S. administers nearly 252 mln doses of COVID-19 vaccines
Georgia needs investments for faster economic recovery - PM
Azerbaijan has lower COVID-19 death rate compared to global indicators - professor
Kazakhstan sees decrease in petroleum oil exports to Spain
Baku hosts opening ceremony of Rhythmic Gymnastics World Cup (PHOTO)
Former serviceman accused of treason and espionage in Armenia
Azerbaijan plans to withdraw its peacekeepers from Afghanistan – Defense ministry
India grants permission for 5G trials to telecom service providers
Armenian side does not fulfill obligations upon int’l humanitarian law - MFA
Japan pledges $50.3 million to help India combat COVID-19
Uzbekistan and Kazakhstan developing analogy of Schengen visa for Silk Road countries
Azerbaijan forming perspective industrial complex
Azerbaijan - important int’l transport hub - chairman of Azerbaijan Railways CJSC (PHOTO)
ADB to no longer finance coal mining, oil, and natural gas field exploration
Successful policy on development of sports in Azerbaijan bearing fruit - Deputy Sports Minister
All gymnasts provided with necessary time to train for Rhythmic Gymnastics FIG World Cup in Baku - Greek gymnast
Germany says production capacity, not patents, key to upping vaccine output
Saudi to make COVID-19 vaccinations mandatory for all workers
Georgia shares data on number of citizen registered for temporary employment in Germany and Israel
Uzbekneftegaz increases natural gas output at field of Gazli oil and gas production dep’t
Uzbekistan to increase copper sulfate exports to Poland
Several investment projects to be implemented in Kazakhstan's Zhambyl in 2021
Iran continues to strengthen ties with China, Russia
Winners of ‘Sustainable Development in Chemistry and Chemical Engineering’ conference awarded (PHOTO)
Very exciting to perform in Rhythmic Gymnastics FIG World Cup in Baku - Polish gymnast
Global Affairs Canada welcomes release of Armenian detainees by Azerbaijan
Azerbaijan's SME Dev't Agency holds training for female entrepreneurs (VIDEO)
Azerbaijani PulPal payment system receives purchase offer
Georgia begins renovating buildings and infrastructure in Gardabani
Azerbaijan eyes to launch WeChat payment solution
Azerbaijan's Central Bank unveils results of tender launched to support database platform
SOCAR’s Petkim reveals profit in Q1 2021
All news