OPEC to maintain stance as shale oil production loses steam

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As a critical factor in determining oil prices in the second half of 2015, Organisation of Petroleum Exporting Countries (OPEC) is likely to maintain its production policy at its next meeting in June.

This is even as shale oil production in the United States has begun to record negative net impact.

Kuwait’s OPEC governor revealed the organisation’s position on Tuesday in the first public comment on what would be a crucial decision to determine the direction of global oil prices in the second half of the year.

Many OPEC oil ministers including Saudi Arabia’s Ali al-Naimi have defended the organisation’s November decision not to cut production but instead defend market share and curtail the output of more expensive producers such as the United States.

The accord sent oil prices below $50 per barrel, extending a sharp decline that began in June amid a global glut of crude.

The Organisation of the Petroleum Exporting Countries has said it believes the oversupply, as much as 1.5 million barrels per day, will evaporate as oil demand picks up and U.S. oil production growth slows, with companies drilling fewer wells.

However, should U.S. oil producers prove more resilient than OPEC expects, the glut could persist and even be further aggravated if Western powers and Iran reach a nuclear deal allowing Tehran to increase its oil exports.

U.S. shale producers are falling behind in the Red Queen’s Race as the downturn in drilling means that new oil production is failing offset falling output from existing wells.

The net result is that the downturn in drilling is threatening to cut output for the first time since the start of the shale revolution.

Other forms of oil production, notably from offshore fields in the Gulf of Mexico, will continue to increase in the next few months. But in the shale sector, the Organisation of the Petroleum Exporting Countries (OPEC) has won its battle with U.S. shale producers and forced output growth to a standstill.

Production from three of the four largest shale oil plays in the United States will fall next month, the U.S. Energy Information Administration (EIA) says.

April production from the Bakken region is projected to fall by 8,000 barrels per day (bpd) from March. Eagle Ford, meanwhile, is expected to drop by 10,000 bpd and Niobrara by 5,000 bpd, according to the EIA’s “Drilling Productivity Report”, published on Monday.

Only the Permian Basin is expected to achieve continued growth next month, but the projected increase of 21,000 bpd is less than half the 43,000 bpd recorded in December.

 

Once production from minor plays and gas-producing regions is included, EIA predicts oil output from shale regions will be flat next month.

Wells drilled in December are expected to have added about 423,000 bpd of new oil when they were completed and put into production in February. But wells drilled in February are forecast to add only 328,000 bpd of new oil when they begin production next month.

At the same time, declining output from the stock of legacy wells is expected to worsen from 319,000 bpd in February to 330,000 bpd in April.

December’s wells added a total of 103,000 bpd to net production in February. But February’s new wells will add virtually nothing to net production in April.

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