At the end of May, the 25th to be specific, OPEC and 13 other nonmember producing countries who agreed to go along with the 12 member cartel’s curbs back in December, will once again convene to contemplate and renew the six-month cut. Believed by many to be the last extension, it is thought that there will be a consensus, despite some members non-compliance and exceptions given to Libya and Nigeria.
Against the backdrop of some success in reducing global oil inventories, the re-emergence of U.S shale production, which has only grown exponentially, leaves many wondering if the cutbacks are enough. Complicating matters for the stakeholders is also the recognition that Saudi Arabia has been losing market share to both Iraq and Iran, while the economies of other countries notably Venezuela are on the brink of collapse.
The scenario unfolding is, therefore, complicated and more desperate than when the 25 countries first entered into the agreement. Angola and the UAE have for instance, actually exceeded their quotas, but overall compliance was last heard to be about 90%, which isn’t too bad, considering the track record of the past where cheating was the norm, not the exception. Still, the extension may be the last given the world’s other swing producer – the United States.
Adding rigs and moving the oil output needle back towards the April 2015 record of 9.5 million barrels a day and beyond in 2018, only increases the already near-record crude inventory level reported weekly by the Energy Information Administration (EIA). When you couple the reality of cheaper costs of shale production, lower fuel demand (now believed to have declined some 2.4 % below last year’s figures), due in part to growing vehicle efficiency and driving habits of millennials, success in trimming oil output is all the more challenging.
The combination of lower demand in the U.S. and elsewhere, along with increased oil production among countries not bound by any agreement to throttle back, while still benefitting from $50 oil, pushes back the likelihood of any success in curbing the global oil glut.
Despite OPEC’s best efforts, cheap oil is here for the foreseeable future.