EMEA News
Bloomberg Says OPEC's Argument For Prolonging Production Cuts Rings False
Although crude output from the Organization of the Petroleum Exporting Countries (OPEC) once again dropped in April, thus reinforcing the notion that the cartel's cutback strategy is achieving its intended goal of rebalancing the global market, one analyst uses compelling evidence to argue that OPEC's reasons for maintaining the cuts ring false.
In noting that OPEC and Russia are maintaining course in order to encourage production companies to invest more in future supply and avoid a catastrophic market tightening (which many analysts warn will come by 2020), Grant Smith, a reporter for Bloomberg, agreed that companies have curbed investment in new projects since prices slumped almost four years ago, and that production from existing fields decreases naturally every year.
However, Smith pointed out that "It costs less to expand global oil production today than it did back in 2014," and he noted that BP Plc cut the costs for its Mad Dog oil field in the Gulf of Mexico by 60 percent; and Statoil ASA's Johan Castberg field in Norway will now turn a profit at $35 per barrel, compared with $80 estimated just a few years ago.
Smith delivered another bombshell: "In the last few years, decline rates at mature fields have undergone a remarkable deceleration, notably in the North Sea and Russia."
Smith quoted Espen Erlingsen, an analyst at Oslo-based consultant Rystad, as saying industry spending in recent years will deliver the necessary 7 percent growth in global oil production to just over 103 million barrels per day (BPD) by the end of the decade: "That trend will continue over the next 10 years if oil remains between $60 and $70 a barrel."
Smith then quoted Mike Wittner, head of oil-market research at Societe Generale SA, who echoed what sober-minded analysts have insisted all along is OPEC's real reason for maintaining its cutbacks.
Wittner said, "Talking about the need for more investment is a way of saying: 'Hey, world, we're OPEC and we want higher prices, but we're actually doing you a favor'; in the end, it's about revenues."
Meanwhile, A Bloomberg news survey of analysts, oil companies and ship-tracking data found that OPEC pumped 31.93 million bpd in April, down from a revised 31.97 million in March; the drop in OPEC production was led by Iran, with Angola and Algeria also suffering production drops amid natural declines and planned field maintenance.
Output from Saudi Arabia, the most vocal OPEC member calling for the cutbacks to be maintained, was little changed at 9.9 million bpd.
Last month, OPEC, Russia, and Iran hinted that the crude cutbacks would be extended indefinitely, with Russia stating it could extend a bilateral deal on oil supplies with Iran for as long as five years.
