Mubasher: Following the return of the US sanctions against Iran under President Donald Trump's administration, the global supply of oil has been declining, which – adding to the cut in the supplies of Venezuela and Libya, and the inventories of the US itself – created a conundrum.
However, some remedies are emerged in this bad situation, including the increasing Chinese oil imports and the rise in Washington’s shale production.
But the shale option is not so practical, given the high cost of its production, said a report released by Al Rajhi Capital Research.
“As per our calculations, the cash required for US shale firms to meet its operating costs and capex requirements has increased to $64/bbl in Q2 2018 from $50/bbl in Q4 2017, as they look to increase their production run rates,” it highlighted.
Shale output is hiking as well as the global demand on it, yet the producers need higher oil prices to make up for the elevated production costs, the report found.
Fortunately, in that seemingly bleak oil situation, the Organization of Petroleum Exporting Countries (OPEC) emerges as a hero, as its prominent members are upping their output to offset any possible shortfall in supply.
“Saudi Arabia’s production increased 490,000 barrels per day (bpd) in the last three months, while production from Iraq and UAE rose by 120,000 bpd and 91,000 bpd, offsetting the decline in output from Libya (-317,000 bpd) and Venezuela (-155,000 bpd) during the same period,” Al Rajhi Capital noted.
The demand is picking up, as the global consumption increased to 100.1 million bpd in 2018 from 95.4 mbpd in 2015, and it is expected to reach 101.7 mbpd in 2019, the research firm’s data showed.
“Overall, in a nutshell, oil prices will continue to be volatile but the direction is likely to be tilted slightly upwards as OPEC will continue to manage prices in our view,” the report said.