OPEC sees cheap oil forcing U.S. to cut shale oil output

Business Materials 9 December 2014 08:00 (UTC +04:00)

Tehran, Iran, Dec. 8

By Dalga Khatinoglu - Trend:

As Brent crude slipped below $69 a barrel, the U.S. President Barack Obama's chief economic adviser Jason Furman said on Sunday that the U.S. will continue to boost oil production but falling global prices will slow down the pace.

The EIA estimated earlier that 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.

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 and force the U.S. oil producers to cut shale oil output.

Iran and Venezuela are against OPEC's production level, demanding the members to keep oil output down to support oil price.

Gal Luft, the co-director of the Institute for the Analysis of Global Security (IAGS) a Washington based think tank focused on energy security told Trend on Dec.8 that the low oil prices indeed dampen the economic conditions of all producers and perhaps most of all of the American producers who are under heavy loans and have higher production costs than OPEC.

Below is the Deutsche Bank estimate in October for oil price targets per barrel that some of the OPEC members require in order to balance their annual budgets:

Libya: $184, Iran: $ 131, Algeria: $131, Nigeria:$ 123, Venezuela: $118, Saudi Arabia: $104, Iraq: $101, UAE: $81, Kuwait: $78, Qatar: $77

Luft who is a senior adviser to the United States Energy Security Council, a cabinet level extra governmental advisory committee says that (the oil production in) some (countries) are still profitable, others not and others will become not profitable if prices slump even further. "That said the producers in America are private and do not conform to government dictate or a cartel. Each producer acts based on his profit margins. They will pump as long as they believe they can make money," he said.

Luft added that with regarding OPEC - each member has different financial needs and different fiscal break- even price. "But while they differ on price they all share the desire to weaken the North American oil boom and therefore would benefit from keeping prices low for a while if - and only if - that erodes American production. OPEC is still relevant and I predict that soon American wells will be shut and prices will spike," he said.

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