OpeOluwani Akintayo
27 September 2917, Sweetcrude, Lagos – The Organisation of the Petroleum Exporting Countries, OPEC, can achieve its goal of a $60 per barrel of crude oil despite the fuss ongoing at the international crude oil, shale billionaire, Harold Hamm told Bloomberg during a live broadcast on Tuesday.
His reaction came after Nigeria’s oil minister, Ibe Kachukwu, told Bloomberg TV that OPEC’s dream is to achieve a $60p/b oil price.
According to Hamm, OPEC can achieve a $60p/d price by recognising the US forecasting error.
Last month, while official forecasts pointed to US crude production reaching 9.82 million barrels per day by December 2017, the Domestic Energy Producers Alliance saw it at 9.35mb/d: “that’s the error”, Hamm said.
The US made an error when it failed to recognise that its shale producers were finally starting to focus on return on investment rather than growth at any cost.
According to him, when oil price fell due to production recovery in Nigeria and Libya in the second quarter, shale producers cut capital expenditure, leading to fall in output.
As a result, varying forecasts from both U.S organisations showed lack of direction, a loophole OPEC can tap into to boost prices.
Adding to his point, Hamm said forecasts of US oil production growth are “way too optimistic distorting global crude oil prices”.
Analysts at Goldman Sachs said in a September 21 note that the level of Brent backwardation- the premium for crude for delivery next month over that for delivery a year in the future, “is consistent with Organisation for Economic Commodity Development, OECD inventories in days of demand cover falling to 5 percent above their five-year average level”. In other words, OPEC is very close to reaching its target for stockpiles.
“And there you have it. The oil group’s cut are doing the job intended, shale isn’t responding and OPEC and friends may finally be reaping the rewards from nine months of impressive compliance with the output deal they agreed on late last year.”
However, Hamm said OPEC still faces same problem it has since oil prices started crashing in 2014.
It appears that OPEC’s $60 per barrel target keeps encouraging growth in production from the US, he said, adding that there is a more important question OPEC should ask itself: “Has US shale usurped OPEC as the global swing producer?”
According to him, if shale producers respond with increased investments and stronger output growth, there will be clear pointer that the country’s price needs, not those of OPEC members will determine equilibrium around which oil prices will fluctuate.
