OPEC vs. U.S. Shale: How will it Affect Markets?

We have been watching the prices of oil surge since Russia and Saudi Arabia backing the extension of the on-going petroleum production cut until March 2018, with the intention to exhaust crude oil stock-piles across the world to a five year average.

Although OPEC comprised of 13 nations in total (and 11 non-OPEC members) have been restricting oil production – down by 32.3 million barrels, cutting output by 840,000 barrels a day – countries such as Iran, Nigeria, Libya and more importantly the U.S. ramped up production to cover the gap. None the less since the announcement oil has fluctuated around $50 a barrel and in fact reached $53.40 on April 11th - today’s price sitting at 50.90 at 1:07 PM GMT. The jump the market experienced was significant – 45.41 on May 3rd to today’s (May 22nd) 50.90 was a noticeable 12 % increase.

The problem is that U.S. shale estimates to increase production by 1.4 million barrels a day. That equates to about 50% of OPEC’s reductions in production and double that of Russia’s.
The question that is raised is will this continue pushing prices up or will the countries which intend to create a production bottle-neck loose a valuable piece of the black pie market-share? We will have to wait and see.

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This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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