12 March 2014, Lagos – The Russian Energy Minister, Mr. Alexander Novak, on Wednesday said that the impact of shale oil on the global energy market would dominate his country’s talks with the Organisation of Petroleum Exporting Countries (OPEC) in June.
The proposed meeting between Russia and OPEC will take place several days before the cartel would meet to decide whether its policy of not cutting down production would be sufficient to force the United States to stop dumping oil in the global market.
Saudi Arabia had said it wanted non-OPEC producers to cooperate with the group in future because the cartel would not cut output unilaterally and lose market share as a result.
At OPEC’s last meeting in November last year, Saudi Arabia and its Gulf allies persuaded fellow members to keep production unchanged.
The decision forced down OIL PRICES below $50 per barrel, from as high as $115 in June 2014, thus hurting the revenues of poorer OPEC countries and non-members such as Russia.
The price of Brent crude yesterday rebounded from a one-month low below $56 a barrel as traders bought the international benchmark and sold its US rival.
Brent for April delivery initially hit a one-month low of $55.92 a barrel before recovering slightly to trade up 26 cents at $56.66 per barrel.
West Texas Intermediate (WTI) for April delivery dropped to $47.59 per barrel.
Riyadh and other cash-rich Gulf producers have argued that low OIL PRICES would LEAD to higher demand for crude, thus effectively forcing the high cost producers out of the market and also suppress the US shale boom.
This, according to Saudi and its allies, would rebalance the markets and push oil prices higher in the second half of 2015.
“The next meeting between Russia and OPEC is planned in Vienna for June. It is not linked in any way to the OPEC meeting itself … This time we will be discussing the impact from shale oil on oil markets,” Novak was quoted by Reuters as saying.
Novak said the current OIL PRICE of $60 per barrel was comfortable for Russian producers.
He said some estimates showed that up to $1 trillion of new projects would be postponed around the world due to lower prices.
“Low prices will be sustained for some time until excessive volumes are cleared from the market … We expect that in the second half of 2015, activity will drop and prices could rise to $65-$70 per barrel by the end of the year,” Novak said
OPEC strategy appears to be achieving the desired results as the number of drilling rigs in the United States has fallen steeply in recent months with production growth slowed.
The Chairman and Chief Executive Officer of International Energy Services Limited, Dr. Diran Fawibe told THISDAY that the strategy would work in the short run.
“To my own mind, I feel that it can work in the short run. Of course, we have seen some evidence of that working squarely for North American shale oil producers, who are now reducing their activities in the market,” Fawibe said.
“OPEC, particularly Saudi Arabia and gulf producers want to force the high cost producers to reduce their output. When the price gets to a level that is below their cost, of course, there will be no incentive for them to continue to produce. That in itself, will reduce the amount of oil in the market,” Fawibe added.
The Russian Energy Minister yesterday confirmed Fawibe’s position when he said that “Today we see that the number of drilling rigs has fallen substantially versus 2014 – roughly by 30 percent. But there are projects that continue to be implemented despite lower prices.”
Russia, the world’s top oil producer for most of the past decade, has refused to cut output in tandem with OPEC, saying such a move would be technically impossible for its oil industry, where private firms account for half of all production.
In November, Russia said after meeting with a number of OPEC ministers that it would not cut output even if prices fell below $40 per barrel.
– This Day