OPEC needs to keep in mind that North America is awash with oil
Canada’s province of Alberta should consider joining OPEC. Albertan reserves and production rival anything in the cartel. So much oil flows from its fields that pipelines are full and North America is awash.
Alberta’s government ordered a mandatory local production cut this week, the first time since 1980. After Brent crude prices tumbled 28 per cent in the past month, onshore US producers will follow suit.
OPEC decisions may get the headlines this week in Vienna but North America’s oil spigot turns a lot quicker.
Tell that to Schlumberger, the largest US-listed oil services group. This week it noted that its North American fracking business had suffered a fast slowdown. Faster, that is, than six weeks ago when it warned about lower activity in its quarterly results.
As one of the largest providers of services to explorers, what Schlumberger says matters. From shale comes about half of America’s oil output says the US Energy Information Agency, and that has risen quickly.
In the year to September, US oil production jumped by nearly 2m barrels a day, up more than a fifth. A fair portion of these barrels piled up in US storage, or was exported. Alberta’s own exported crude to the US understandably could not find buyers.
Message received, it would seem, by North American drillers.
Has OPEC received the same message, one wonders. After the Jamal Khashoggi murder, Saudi Arabia wants to balance demands for lower oil prices from a supportive President Donald Trump with its desire to reduce supply.
This year, Saudi Arabia has pumped more barrels to offset about 90 per cent of the oil lost after Iran’s sanction-forced cut in output. Traders feel that a cut by OPEC of no less than 1.4m barrels a day will stabilise prices. But that looks aggressive, as the cartel would then return to 2015 levels of production.
Assuming Saudi Arabia still needs US support, a really big reduction in OPEC quotas looks unlikely. But US and Canada will continue to react quickly. Get ready for more volatility in oil prices.
Source: Australian Financial Review