Saudi Arabia’s energy minister said Thursday he’s “optimistic” that OPEC will reach a deal Friday to boost oil production, which could help consumers at the pump.
“The most important thing is the consumers,” Khalid Al Falih said. “We’re not going to allow a shortage to materialize to the point that markets will be squeezed and consumers will be hurt.”
OPEC and Russia are meeting in Vienna to hash out a deal to increase production by one million barrels per day, the Wall Street Journal and other news outlets reported.
But U.S. industry interests say the Saudi comments have little to do with consumers and more to do with saving OPEC’s market.
The Saudis saying they will increase production is more of a response to the U.S. absorbing a big chunk of their market, the American Petroleum Institute’s chief economist, Dean Foreman, told the Washington Examiner.
“I would interpret that as OPEC saying the U.S. has stepped up and has taken a lot of market share from OPEC, and they believe they need to compete,” Foreman said. The Saudis want to protect that by injecting more of their oil into the market.
Russia already raised output ahead of the meeting, Foreman says, and it would behoove the Saudis to do the same, referring to the OPEC meeting with Russia as “ROPEC.”
He underscored his point by saying the Energy Department’s latest projections showing an oil surplus coming in the coming months, which means there will be more oil in the system than the world can absorb.
API, the largest oil and natural gas industry trade group, released its latest quarterly report on Thursday, showing the U.S. setting new records for oil production and exports, while foreign imports have been cut — balancing the oil trade for the first time in 50 years.
The U.S. has reached a record 10.6 million barrels per day of oil production this year, while increasing exports to 2.1 million barrels per day in May, according to the report.
The oil group’s report said the U.S. supplied the majority of new global oil demand growth in 2018, while reducing its foreign imports. U.S. net oil imports averaged 3.2 million barrels per day in the first five months of 2018, which is down by more than 1 million barrels from a year ago.
The 100 million barrel-per-day increase in global oil demand has been met by U.S. production, according to Foreman. The U.S. has compensated for waning oil supplies from financially struggling Venezuela and has shown that the U.S. has become a key global player, thanks to shale, he said.
“This tells us that the U.S. has shouldered substantially all of the increase, year-to-year, in global demand growth, and more,” Foreman said. “We’ve compensated for declining supplies in places like Venezuela, Libya – somewhere OPEC had not stepped up, the U.S. really has, and more.”
“We lost oil in the market due to Venezuela and the problems in Iran,” said Jerry Bailey, former president of Exxon Arabian Gulf, in an interview with the Washington Examiner. “We have several sources that are not producing the way they were.”
Bailey said the Saudis may be increasing production to back up those losses, but the amount of oil in the market would be the same.
At the same time, many OPEC countries rely on the price of oil to keep their economies afloat, and injecting more oil into the supply chain would potentially lower prices. So, there are arguments either way.
Russia doesn’t have the same constraints and may want to put more oil onto the market, he said. So, non-OPEC sources such as Russia may drive the price.
Bailey is president of Petroteq, a Utah company that has developed an environmentally friendly way of harvesting oil from sand. The oil sands in Utah are an unconventional source of oil, such as the oil found in shale, but closer to the surface.
Any time the price of oil is higher, it gives incentive to less conventional oil production, like shale and oil sands, Bailey said. Petroteq produces oil at about $25 per barrel, and at the current price per barrel, around $65, it is economically viable.
“It’s not going to put us out of business” like when the price was $29 per barrel, he said.
He said it costs $15 to $25 to produce a barrel of oil from shale. But Saudi Arabia “can produce oil under $10 a barrel,” which means no one can dismiss the country’s influence and significance in the global oil market.
