The Organization of the Petroleum Exporting Countries left its production target unchanged at 30 million barrels of oil per day, a move that should sustain low prices that have hit U.S. shale drillers.
The decision at the oil cartel’s biannual meeting in Vienna was expected. OPEC wanted to keep downward pressure on prices to keep U.S. drillers at bay.
Low prices have forced U.S. drillers to lay down their rigs as falling costs crush profit margins, a move that has created more room for supplies from OPEC nations — chiefly Saudi Arabia — that had ceded market share to American producers during the shale energy boom.
Oil traded at above $110 per barrel in June 2014, falling to a six-year low of about $43 per barrel in January in the wake of OPEC’s November 2014 decision not to curtail production amidst a global supply glut. But prices have recovered recently, hovering around $62 on Friday after the OPEC announcement.
The Saudis believe its strategy of keeping prices low by holding production steady is having its intended effect, as U.S. forecasters have revised daily production projections downward. The U.S. Energy Information Administration predicts U.S. output will hit 9.2 million barrels per day, down from earlier estimates of 9.6 million and 9.3 million.
While low prices have hurt some U.S. drillers, the oil from prolific shale regions in Texas and North Dakota is still flowing. The industry has refined hydraulic fracturing, or fracking, methods to help reduce capital costs as well.
“Innovations have already led to a U.S. energy renaissance. Tight-oil reservoirs can remain viable today, breakeven costs are already down by 15 to 30 percent,” Ryan Lance, chairman and CEO of ConocoPhillips, said Thursday at a seminar during the OPEC meeting, according to Reuters.
Analysts said the focus is really on the next round of talks in six months. That’s because Iran is currently negotiating with the P5+1 — China, France, Russia, the United Kingdom, the U.S. and Germany — over its nuclear program, which may result in lifting sanctions on Iranian oil exports.
While it would take a while for Iranian oil to begin flowing — exports have ben cut in half from pre-sanctions level to 1.1 million barrels per day — OPEC members might make an adjustment at the next meeting to account for Iranian supplies. But it likely would take until mid-2016 for any Iranian oil to reach the market, said Sara Vakhshouri, president of consulting firm SVB Energy International.
“By then the forecasts are expecting a shale production drop and Iranian oil shouldn’t push the prices down significantly. But it can help maintaining the prices low, unless the turmoil in the Middle East (Iraq, Libya, Syria and Yemen) escalates and create a fear of supply drop from the region,” wrote Vakhshouri, a former energy market analyst and adviser to the director of the National Iranian Oil Company International.
