Shale oil production in North Dakota, U.S.
If there ever was doubt about the strategy of the Organization of Petroleum Exporting Countries, its wealthiest members are putting that issue to rest.
Representatives of Saudi Arabia, the United Arab Emirates and Kuwait stressed a dozen times in the past six weeks that the group won’t curb output to halt the biggest drop in crude since 2008. Qatar’s estimate for the global oversupply is among the biggest of any producing country. These countries actually want -- and are achieving -- further price declines as part of an attempt to hasten cutbacks by U.S. shale drillers, according to Barclays Plc and Commerzbank AG.
Crude fell 48 percent last year and has declined 35 percent since OPEC affirmed its output target on Nov. 27. That decision, while squeezing revenues for OPEC members in 2015, aims at preserving their market share for years to come.
“The faster you bring the price down, the quicker you will have a response from U.S. production -- that is the expectation and the hope,” said Jamie Webster, an analyst at consultants IHS Inc. in Washington. “I cannot recall a time when several members were actively pushing the price down in both word and deed.”
U.S. crude production totaled 9.13 million barrels a day last week, up about 1 million barrels from a year ago and 49,000 from the OPEC meeting in November. Horizontal drilling and hydraulic fracturing in underground shale rock have boosted output by 66 percent over the past five years. Exports, still limited by law, reached a record 502,000 barrels a day in November, according to the Energy Information Administration.
The four Middle East OPEC members are counting on combined reserve assets estimated by the International Monetary Fund at $826.4 billion to withstand the plunge in prices. Petroleum represents 63 percent of their exports. At least 10 calls and several e-mails to the oil ministries of all four countries on Jan. 7 and yesterday weren’t answered.
The price decline will cost all 12 OPEC members a total of $257 billion in lost revenue this year, according to the EIA. Venezuela has a 93 percent chance of defaulting on its debt over the next five years, according to CMA, a data provider owned by McGraw Hill Financial Inc. President Nicolas Maduro said Dec. 13 that “there is no possibility of default” and on Jan. 7 that the country has “the capacity to obtain the financing” it needs.