Saudis Now Say Too Early to Discuss Cutback Extension As US Shale Predicted to Increase Yet Again

May's output for the U.S. is forecast to have the  biggest monthly increase since February 2015.

As recently as Friday, Organization of the Petroleum Exporting Countries (OPEC) members were gung ho about the prospect of an extension for their crude production cutback initiative; but in the wake of a report on Monday that U.S. shale production in May is set for its biggest monthly increase in more than two years, members such as Saudi Arabia seem to be taking a more cautious stance.

The U.S. Energy Information Administration in its latest drilling productivity report states that May output is set to rise by 123,000 barrels per day (bpd) to 5.19 million bpd, the biggest monthly increase since February 2015 and the highest monthly production level since November 2015.

Oil production in the Permian play of West Texas and New Mexico is forecast to rise by nearly 76,000 bpd to a record 2.36 million bpd, and output in the Eagle Ford region is set to rise by 39,000 bpd to 1.22 million bpd; as for production in the Bakken, it will drop 1,400 bpd to 1.02 million bpd, according to the EIA.

While it is unclear whether these figures had any bearing on his announcement, no sooner had they been released than Khalid al-Falih, energy minister for the Saudis, told Al-Arabiya television during a renewable energy investment conference that it is too early to discuss whether extending the six-month production deal beyond June.

He acknowledge that OPEC compliance is currently above 100 percent and that there is a consensus within OPEC on the need to stabilize the market; further, producers he said will do whatever is necessary to achieve that goal - but he didn't say whether another six months was required.

Al Falih added that producers will look at the expected condition of the market over the next two years and be cautious when making their decision on any extension.

It is also unclear whether the minister's remarks had any impact on trading, but Monday saw Brent settling 53 cents lower at $55.36 and West Texas Intermediate settling down 53 cents at $52.65 per barrel, after three straight weeks of gains.

Citi analysts shrugged off Monday's losses, stating in a note that "We remain constructive on oil prices for the balance of 2017 as second quarter 2017 should see markets tighten as a result of the current OPEC/non-OPEC deal whilst an expected extension of the deal on May 25th should keep oil inventories drawing in the second half of the year.

"This should push Brent to $60-$65 per barrel."

However, the experts also aren't impressed by OPEC rhetoric and perceived Saudi flip-flopping: Andrew Lipow, president of Lipow Oil Associates, told Reuters, "While the Saudis and the Russians have been complying with their cuts we've seen Iraq and a number of other countries produce more than their share of the quota.

"So that gives the market pause at how effective they're going to be at taking oil out of the market."

On Friday, it was reported that Saudi Arabia, Kuwait, and Iraq were targeting $60 per barrel as the level they want to push crude prices, as they and other members declared their support for an extension of the OPEC cutbacks.