Oil prices edge up as USA drilling declines
The agency expects production to hit a low of 8.6 million barrels a day in mid-2016.
Oil prices tumbled on Friday, with USA crude falling 5 percent, after a selloff in Wall Street equities offset positive impact to crude from a third weekly decline in the US oil rig count. The EIA report followed recent steps taken by the Senate Energy and Natural Resources Committee to pass legislation to lift the restrictions, and was praised by Senator Murkowski as support for moving forward to broaden the scope of permissible USA crude oil exports.
Analysts said the move by OPEC was done to protect Saudi Arabia’s share of the global market.
Oil producing Arab states are under pressure by low oil prices, and a foreseeable opening up of Iran on the world oil markets.
Algeria’s Minister of Energy, Salah Khabry, said that “OPEC can not do much on its own to stop the decline of oil prices and it needs producers from outside the organisation to assist in reducing global supply”, according to Algerian Libert newspaper.
Even after China’s slowing economy dragged crude to a six-year low, oil’s second-biggest consumer remains the main safeguard against a further price meltdown. In July 2015, the Senate Energy and Natural Resources Committee approved legislation sponsored by Senator Murkowski that would remove the crude oil export restrictions.
While Chinese stockpiling will “taper off” in 2016, it’s helping the oil market to digest excess production gradually, according to Goldman Sachs’s Currie. The majority of the declines would come from United States light crude, which is expected to fall by 400,000 bpd. Though non-OPEC countries lowered their production levels, it failed to revive the demand.
OPEC expects crude prices to rise to US$80 by 2020 as output falls elsewhere. He estimates the company’s intrinsic value at $51 a share, well above its current price of $38.79.
“Letting drillers reap extra profits from selling crude oil overseas, if the market dictates, would provide greater incentives for drilling, stimulating new supply”, the paper said.
Oil producers echoed that sentiment, waiting until the last minute to cut 2015 capital spending budgets.
Commerzbank said: “We actually believe that the decrease in USA oil production will pick up pace in the near future: for one thing, hedging deals agreed at higher oil prices are expiring, while for another the low chances of the environment improving in anything like the near future are likely to prompt creditors to pull the ripcord”.
The cure for low oil pricesAs production is declining, demand for oil is starting to accelerate.