OPEC asks US frackers to curtail production

Three more reasons OPEC is in distress. Eventually there will likely be 6 or 15 wells on that site. Photo by James Ulvog.

Pressures on OPEC continue.  Several recent articles point to OPEC’s request that the US cut back its oil production. Creating financial distress didn’t work to take out US producers, so OPEC will instead try asking frackers nicely to curtail production.

Anyone want to guess how that will turn out?

Another article explains that the reversal of austerity moves by Saudi Arabia is due to internal political maneuvering.

5/11 – CNN Money – OPEC to U.S.: Please don’t pump so much oil! – How do you think this will work: In their monthly report, OPEC said that all oil producers need to work together to reduce the oversupply (hint so they can all make more money) and dropped a strong hint that producers in the US should cut back production.

Yeah, that’s a great plan! OPEC can bank on that working.

5/12 – Daily Caller – Saudi Arabia Whines US Has Too Much Control Over World’s Oil – One commentator observes the Saudis have realized they don’t have as much control as they did a decade ago.

America imported 60% of its oil in 2007 but only 27% in 2014. That is a massive loss in market for OPEC.

There is a lot of pressure on Saudi Arabia, both internally and externally.

Expected budget deficit the year is expected to be US$140B, which is equal to about 20% of the economy.

5/11/17 – AFP at Yahoo! News – OPEC wants ‘collective efforts’ to counter US oil output – Articles say there are signals from OPEC that they will continue the production cut and that in turn has caused oil prices to bounce back to the $50 range.

May 25 is the next OPEC meeting.

OPEC members along with Russia have a 1.2M bopd production cut in place. The leaked expectation from OPEC is that in 2017 there will be a 0.95M bopd production increase from non-OPEC members, of which 0.82M bopd will be from the U.S.


That will make it a bit more difficult to balance supply, demand, and stored inventory, what with that 0.92M increase essentially offsetting the 1.2M reduction.

5/11/17 – Reuters – OPEC sees much higher oil supply from rivals in 2017 – This article points out the 0.95M bopd increase from outside OPEC+Russia is an increase from their previous estimate of a 0.58M bopd increase.

That extra 0.37M bopd is gonna’ hurt OPEC revenue. That’s a third of a million barrels when the oversupply is somewhere around a million a day.


5/11/17 – Wall Street Journal – Saudi Reversal Marks a Power Play in the Kingdom – Article gives a good explanation on the austerity moves and reversal in Saudi Arabia.

Last September the government cut pay for all government workers and cut back on many subsidies. This was part of the plans by the Deputy Crown Prince Mohammed bin Salman to massively re-engineer the country’s economy to reduce dependency on oil. Substantial social liberalization was also part of the plan.

Last month, all the pay cuts were reversed and all the subsidy reductions were reversed. To go even further on reversing course, the article says government workers were reimbursed for the pay cuts, completely reversing any impact of the austerity moves.

Article says that for a country that does not allow any dissent, there was a significant amount of protest, which actually became visible. There was a lot of pushback in social media. More importantly, I think, is the military officers were starting to grumble, especially air force officers.

The visible disagreement is a big deal for a closed country that does not tolerate disagreement.

How the sudden reversal of the austerity cuts will be interpreted is the next big step. Will it be perceived as weakness in response to the extremely mild disagreement or will it be perceived as wisdom when a policy wasn’t quite working.

Article says this is a power play to move the Deputy Crown Prince into the ruling position.

5/14/17 – Bloomberg – OPEC’s Staring Down a Double-Barrel Cut – Analyst thinks that OPEC will not only need to extend their 1.2M bopd production cut at their meeting next week, but to balance world supply, the will need to double the cut, shaving off another 1.2M bopd from their combined production.

Hmm. At $50 a barrel, that would be another $60M a day taken out of the cartel’s combined revenue, or about $21.9B a year. Yeah, that will go over well at the meeting.

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