Oil Shale Boom?
OPEC surprised the markets when for the first time in eight years’ oil production limits will be put in place at its November meeting. The September 29th announcement from OPEC sent markets up by almost $3 per barrel. The rally continued with the WTI week closing at $48.24.
Hundreds of oil and gas bankruptcies are an ugly background for recent predictions for continued records inventory levels.
The projected changes would be caused by an unprecedented agreement between arch-rivals Saudi Arabia and Iran.
In its announcement, OPEC stated:
“In the last two years, the global oil market has witnessed many challenges, originating mainly from the supply side. As a result, prices have more than halved, while volatility has increased. Oil-exporting countries’ and oil companies’ revenues have dramatically declined, putting strains on their fiscal position and hindering their economic growth. The oil industry faced deep cuts in investment and massive layoffs, leading to a potential risk that oil supply may not meet demand in the future, with a detrimental effect on security of supply.”
“The Conference opted for an OPEC-14 production target ranging between 32.5 and 33.0 mb/d, in order to accelerate the ongoing drawdown of the stock overhang and bring the rebalancing forward.”
“What we are looking at here at the very least is a freeze,” Paul Sankey host of the conference call said. “We were looking for more OPEC production growth but now we no longer think so.”
Why did OPEC do it?
“With weaker demand predicted through 2017 they could see a rough market coming,” the analyst theorized. “Being a cartel the economics were overpowering: a 10 percent cut could give as much as a 30 percent rise in oil prices.
In conclusion...If a 30% oil price rise is realized, then oil shale could boom again.
Reference: September 30, 2016, Will The OPEC Deal Lead To A New Shale Boom? Oil & Gas 360, www.oilandgas360.com