When will OPEC come out of illusion created by the western media?

Since the Saudi-led OPEC agreed to curtail production, I have been saying that it is an attempt to gulp their market share. Western media, mostly own by anti-Muslim groups, is still trying to persuade OPEC to further cut output to facilitate the US to attain the status of largest oil producing country.

Till recently, there was embargo on export of oil from the US as the country was oil deficient. Now the US has attained the club of oil exporting countries and its exports are on the rise. Shipment data also shows more oil being moved through the oceans than when cuts were put in place.

According to Reuters, oil prices tumbled more than 2 percent on this Friday, posting the biggest weekly decline in more than a month. The fall was prompted by rising US production and stockpiles. This completely frustrates attempts by OPEC to reduce the global crude glut.

During the week ended on Friday, Brent fell 7 percent, while WTI came down 6.7 percent. It was the largest percentage drop for both benchmarks since the week of March 10, when rising concern about the supply glut undermined big bets on an oil rally.

Many analysts suggest that OPEC should continue reduction in production for another six months. On Friday an OPEC and non-OPEC member technical committee recommended extending cuts of almost 1.8 million barrels per day (bpd) to be formally approved at the upcoming 25th May meeting.

While it is not clear that Russia would support an extension, it is also feared that OPEC-led by Saudi Arabia may leave the cartel vulnerable. The logic is simple, why should it support the US oil producers?

Reportedly, US drillers added oil rigs for a 14th week in a row, extending an 11-month recovery that is expected to boost US shale production in May in the biggest monthly increase in more than two years. Drillers added five oil rigs in the week to ending 21st April, taking the total count up to 688, the most since April 2015. That is more than double the same week a year ago when there were only 343 active oil rigs.

Analysts projected that US energy firms would boost spending on drilling and pump more oil and natural gas from shale fields in coming years with energy prices expected to climb. After taking a hit last year when dozens of US shale producers filed for bankruptcy, private equity funds raised $19.8 billion for energy ventures in the first quarter - nearly three times the total as compared to the same period last year.

A US financial services firm said in a note this week that its capital expenditure tracking showed 57 exploration and production (E&P) companies planned to increase spending by an average of 50 percent in 2017 over 2016. The expected spending increase in 2017 followed an estimated 48 percent decline in 2016 and a 34 percent decline in 2015.

I am forced to arrive at a conclusion that those at the helm of affairs of OPEC are not sincere with their own countries but facilitating the US to attain the status of largest oil producing and exporting country, please correct me if I am wrong.

US the biggest beneficiary of output cut by Saudi-led OPEC

I posted a blog ‘US producers gulping Saudi share’ on 4th February 2017. In this blog I had expressed my apprehension that Saudi Arabia was most likely lose its market share by cutting down output. I also warned that with the improvement in oil prices, US producers would be prompt in increasing their production to gulp Saudi share.

In the recent past various reports have been released that supports my point. The reports indicate that the US production has risen to around 9 million barrels/day. These reports also confirm that the compliance by OPEC members is as high as 95 percent; Russia has not made the corresponding cut in its output.

According to EIA data, US crude inventories hit record highs last week, after eight straight weeks of build ups. This was because of increase in number of active rigs as production topped 9 million barrels per day for a second week in a row, the most since April 2016. Increase in US crude stockpiles undermine efforts by Saudi-led OPEC to contain global oil glut.

I am obliged to share a report published by Reuters ‘U.S. drillers add oil rigs for seventh week in a row: Baker Hughes’ indicating that with the improvement in crude oil price the US drillers have added a total of 293 oil rigs in 36 of the past 40 weeks. This is the biggest addition since a global oil glut crushed the market in mid 2014. The US drillers added seven oil rigs during the week ended 3rd March 2017, taking the total count up to 609, the most since October 2015. During the same week a year ago, there were 392 active oil rigs only.

According to Baker Hughes, oil rig count plunged from a record 1,609 in October 2014 to a six-year low of 316 in May 2016. This fall has been attributed to the collapse of US crude oil prices to near US$26 in February 2016, from over US$107 a barrel in June 2014.

Yet another sign of warning is a report by the US financial services firm, Cowen & Co that said its capital expenditure tracking showed 52 exploration and production (E&P) companies planned to increase spending by an average of 50 percent in 2017 over 2016.

One of the likely OPEC decisions could be to declare that the agreement reached last year is no longer binding for its members. Increasing output may not pose any problem for OPEC members but could certainly put US producers in trouble. Only price could determine who can withstand the completion.