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OPEC maintains production despite sliding crude oil prices


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OPEC maintains production despite sliding crude oil prices

The oil price war rolls on with benchmark Brent crude hovering around its lowest in four years, below $85 a barrel on Wednesday.

Even as the International Energy Agency slashed its forecasts for world oil consumption and demand, core members of OPEC – Saudia Arabia, Iran and Kuwait – said they would not be cutting production to shore up prices.

They seem to be focused on fighting for market share in the face of an unrelenting rise in the production of US shale oil.

Crude has suffered a four month long rout, slipping over 26 percent since since mid June when prices were boosted to more than $115 by the fighting in Iraq.

Michael Hewson, an analyst with CMC Markets, explained why: “We’re in a bit of a price war at the moment, we’ve got more supply then we’ve got demand, and I think this is in part a ploy by Saudi Arabia to I think squeeze the shale oil revolution and US producers more than anything else, but at some point I think we could well hit a floor and that floor is probably around the $80 a barrel mark.”

Saudi Arabia is reportedly willing to allow prices to slide as low as eighty dollars for a year or two to make it uneconomic for US shale oil drillers.

However, industry experts believe a substantial slow-down in US output is still some way off.

Small producers vulnerable to sudden price moves may have to slow spending, fast reducing the amount of oil gushing to market.

But even as drillers consider cutting budgets for 2015, output may continue to grow through next year and possibly into 2016, according to those experts.

Existing wells that are drilled but not yet fracked will keep output surging for months, they said.

Many drillers have long-term rig contracts and are loathe to pay costly penalties for dropping equipment they could need soon after.

Most have hedged next year’s production at much higher prices, and are racing to lock in 2016, protecting their revenues even if the free-fall in oil markets continues.

Much depends on how the shale industry responds to an unfamiliar environment of lower prices.

“It is like turning an aircraft carrier – you can’t do it on a dime,” said Roland Burns, chief financial officer of Comstock Resources in Frisco, Texas, which has operations concentrated in Texas, Louisiana and Mississippi.

with Reuters

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