04 December 2017, Sweetcrude, Lagos – The most awkward part of ongoing oil cut deal by the Organisation of the Petroleum Exporting Countries, OPEC, and non-OPEC producers is shale, Nigeria’s Petroleum Minister, Dr. Ibe Kachikwu, has said.
The minister disclosed this during a live interview with Bloomberg TV after OPEC/non-OPEC meeting in Vienna, Austria last week.
According to the minister, uncertainty about shale drillers’ next move had given OPEC and its non-OPEC partners a tough time.
Although there had been over 104 percent compliance by OPEC and non-OPEC members, there are still a bit of slag by some countries in terms of reaching 100 percent compliance.
“But this time around, you are going to see a lot of enforcement to make sure everybody is on board and no cutting corners”.
Speaking on an exit strategy from the deal to be employed by OPEC and non-OPEC, Kachikwu said the group’s focus is still on working down inventories.
Inventories are stockpiles of unrefined petroleum, measured in numbers of barrels. Oil producers use crude stockpiles to smoothen out the impact of changes in supply and demand. Inventory levels are affected by OPEC’s production decisions, political events, tax policy changes and other factors.
“The reality is that while we are cutting down inventories, shale keeps disrupting with higher outputs”.
However, he advised OPEC to keep cutting down excesses in the market, be disciplined with agreed quotas and cut production costs.
“Whether we agree or not, what is making shale boom is because its production cost is low.”
“But once OPEC is able to cut down its costs then, the impact of shale will be reduced”, he added.
The minister said there was little the group could do about shale, saying OPEC’s responsibility is to keep “watching our barrels and forget the old market share tale.”
“We should focus on cutting our costs of production”.
Asked how much Brent benchmark could increase to as a result of the cut, Kachikwu said “around $62 by next year ending”.
“But I’m not keen on predicting prices”, he added.
Oil price dropped below $58 per barrel after investors weighed increases in U.S drilling rigs against OPEC’s promises to extend output cuts till end of next year.
Futures fell by 1,3 percent in New York after adding 1.7 percent on Friday.