Battle for Market Share | Russell T. Rudy Energy LLC
“World Oil” cites the April monthly report recently issued by the International Energy Agency (IEA) which contends that the battle over global market share, and its impact on oil prices, has just begun. The Paris based body which is the advisor to 29 industrialized nations predicts oversupply, and consequently, low prices in the coming months.
Last November OPEC, led by the Persian Gulf states, agreed not to reduce production in the face of falling prices. This exacerbated the price collapse and initially it appeared that U. S. shale operators capitulated. They slashed budgets, cut jobs, and idled rigs, which is finally resulting in reduced production volumes. However, many industry observers see this as only round one. While crude production and supplies are diminishing, refined product inventories are building in the U. S., contrary to historical seasonal trends.
Nevertheless, with reduced crude output, prices firmed and have even risen somewhat. Concurrently, drilling and completion costs have come down and shale operators have found creative ways to reduce other operating expenses. This has enabled companies to remain profitable or withstand losses better than was originally feared. This could be considered round two.
Now price recovery seems to be imperiled by surprisingly strong production increases in non-OPEC nations such as Russia, China, Colombia, Vietnam and Malaysia. OPEC members, Iran and Iraq, are increasing production and Saudi Arabia, Kuwait and the United Arab Emirates are all producing near their highest levels in three decades. This level of production, in concert with negligible demand growth, is exerting very strong downward pressure on global prices in the short run. Even more significant is OPEC’s aggressive investment in future production capacity in spite of weak prices.
OPEC is currently producing about 31.2 million barrels of oil per day (bopd), well in excess of their previous average of about 30 million. With non-OPEC production increasing by approximately 830,000 bopd, we will remain awash in crude for the short to intermediate term.
The IEA report concludes that Saudi Arabia, the world’s largest oil producer, “is intent on maintaining it’s policy to preserve its market share
To read the article in its entirety, please go to http://www.worldoil.com/news/2015/5/13/opec-battle-for-oil-market-share-only-just-started-iea-says .
