Oil Price Slide Puts The Brakes On US Shale Growth

Fredrick Soto
December 7, 2018

Saudi Arabia sought to persuade Russian Federation on Wednesday to cut oil production substantially with OPEC next year in an attempt to arrest a decline in the price of crude and prevent another global glut.

The cartel and its allies are meeting in Vienna this week, trying to make a tough choice to cut output and support prices, risking the loss of more market share to the US.

He tells reporters the nations are "after a stable market and also a fair price for the producers as well as the consumers".

"The cartel has to go above and beyond the 1 million barrels cut, to at least 1.4 million to really steady the ship", said Wilson.

But upon leaving the meeting, Saudi oil minister Khalid Al-Falih said "we're still deliberating". If Russia were to cut its production by, say, 250,000 bpd, which is likely in our view, then the total supply reduction from the OPEC+ group could be around 1.3 million bpd.

When President Trump announced his decision to pull the USA out of the Iran Nuclear Deal and reimpose sanctions on the Islamic Republic, many oil producers ramped-up production over fears of the effects the sanctions would have on trading.

"We don't need permission from anyone to cut", Saudi minister Al-Falih said.

Crude prices began falling in October and continued to plunge last month because of oversupply and fears weaker global economic growth would dampen energy demand.

The recent price slide, by around 30 percent from four-year highs in early October, has brought down WTI Crude prices dangerously close to the wellhead breakeven prices in many US shale areas.

That would be a more bullish outcome than Al-Falih had hinted at early in the day, when he said a reduction of about 1 million barrels a day from the entire OPEC+ coalition should be adequate and "certainly we don't want to shock the market".

"Hopefully, OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!".

One issue that might complicate relations between the USA and OPEC is the murder of Saudi Arabian journalist Jamal Khashoggi by people linked to the government in Riyadh.

Most OPEC members felt the same way, but "some members are going along with USA policy", he said.

Moscow has shown willingness to cooperate with OPEC to cut oil production.

American oil producers do not co-operate with Opec to manage prices, because that would be illegal under USA anti-trust or competition law.

Khashoggi, a prominent critic of the polices of Saudi crown prince Mohammed bin Salman, was killed in the Saudi consulate in Istanbul on 2 October. "OPEC and Russian Federation will be very careful about voluntary "blood letting". OPEC ministers are also discussing whether to exempt Libya and Venezuela from making production cuts, another delegate said. By some estimates, the USA this year became the world's top crude producer.

Given the economic sanctions being reimposed by the United States, the Islamic republic " doesn't join any agreement for cutting production because of the special situation Iran faces", oil minister Bijan Namdar Zanganeh said.

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