Time For Frackers To Gear Up? Oil Spikes To $76 On OPEC Failure To Boost Output

Sultan Ahmed Al Jaber, the CEO of Abu Dhabi National Oil Co., has invested billions… [+] to boost the UAE’s production capacity and wants to see a return on his investment.
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Crude oil prices rose to three-year highs above $76 a barrel as the OPEC+ summit was marred by a diplomatic standoff. The cartel had informally agreed to a deal that would have seen them put back 400,000 barrels per day, per month, through April 2022, according to early Monday reports. However, this was shattered when OPEC cancelled the conference without even holding the anticipated Monday deliberations after lengthy weekend talks. It’s pointless to start a meeting if you don’t know how to terminate it. The point of contention wasn’t whether more oil should be produced, but rather how to do it.
OPEC cut output by 10 million barrels a year ago when oil demand fell because to Covid-19 lockdowns.
They’re still keeping about 6 million bpd off the market, but not for much longer. The oil-poverty pandemic of 2020 has since been alleviated. The demand for oil has risen to about 100 million barrels per day. Air travelers at U.S. airports have increased from 500,000 to 1.5 million per day since the beginning of the year.
By the end of the year, analysts were practically unanimous in projecting that OPEC will add several million barrels per day to the market. A “no-deal” scenario looks to lock in the current agreement, at least until the cartel can calm down and meet again. “The prospect of a no-deal that may strip the market of the extra barrels that it expects” was “ultra-bullish” for oil prices, according to Louise Dickson, an analyst at Rystad.
The main point of contention was which producing countries would be the first to reverse their cuts and export more crude. The United Arab Emirates is claimed to be the main opponent, stating that its present allotment of 3.16 million barrels per day is disproportionately low compared to Russia and Saudi Arabia, and that it is even lower as a percentage of their sustainable production capability (4 million bpd) (both currently at 11 million bpd quotas). UAE wants to increase its quota to 3.8 million bpd.
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Abu Dhabi National Oil Company, or ADNOC, the emirates’ oil champion, has been extremely busy in recent years, investing billions in new oil production. Sultan al Jaber, the company’s chairman, is hoping for a comeback. ADNOC is adamant about increasing its oil output. It would prefer to do so under the auspices of a new OPEC agreement, but by refusing to compromise over the weekend, the UAE has indicated that it is willing to forge its own route. In a tweet today, Roger Diwan, an analyst at IHS-Markit, said the UAE had determined that now was the time to “remove the band aid” and pursue its own energy policy, i.e. increase output unilaterally if necessary.
Drilling for oil is enormously profitable for all participants at $76 per barrel, and keeping quotas in place becomes a genuine struggle. The UAE could not add enough oil to international markets to create a price collapse on its alone, but as OPEC’s history has demonstrated, when one significant participant starts “cheating” on their quotas, it invites others to do the same, leading to a downward price cycle. “If Saudi Arabia and the United Arab Emirates are unable to resolve their differences, it might lead to a winner-take-all attitude and a return to price wars, which would be a draconian scenario for energy investors,” Credit Suisse analyst Manav Gupta said in a research note Monday night.
America’s oil frackers are one factor that OPEC would rather not have to deal with. In February 2020, US oil output reached an all-time high of 13 million barrels per day (a nearly 200 percent increase in a decade). At these prices, more drilling rigs are being put back to service, bringing our domestic output to 11.1 million bpd. According to the Baker Hughes rig count, there are 475 active rigs in the United States right now, up 212 from last year’s lows.
President Biden, understandably, wants to avoid a revival of the American oil boom. The Biden-Harris administration campaigned on ending fracking in the US, blocked new leasing on federal lands, and cancelled the Keystone XL pipeline. “At this time, we feel there is ample oil production capacity around the world,” White House spokeswoman Jen Psaki said on Friday. The administration said it was “closely monitoring” the situation after OPEC discussions were canceled on Monday, and encouraged the group to find a “compromise solution.”
“The date of the next meeting will be decided in due course,” OPEC Secretary General Mohammed Barkindo allegedly said Monday./nRead More