Published: Gulf News on January 13, 2021 11:20
Dubai: Any attempt by US shale and other oil producers to boost output this year will backfire and lead to lower prices, according to the energy minister of the United Arab Emirates.
Oil prices have surged in the past two months with the development of coronavirus vaccines. They jumped again last week when Saudi Arabia said it would unilaterally cut crude output by 1 million barrels a day in February and March, a move the kingdom described as a “gift” to other producers.
With demand still fragile, they “are wise not to jump the gun and overproduce during the recovery year,” UAE Energy Minister Suhail Al Mazrouei said in an interview on Tuesday before a forum organized by Gulf Intelligence, a Dubai-based consultant. They “need to be careful not to flood the market.”
U.S. crude stockpiles climbed with the onset of the virus and as economic activity plunged. Though they fell from a peak of 541 million barrels in June to 485 million on Jan. 1, they’re still up 12 per cent from a year ago.
Shale companies in the U.S. pumped about 8.1 million barrels daily in January. That compares with 9.3 million in March 2020.
At a virtual meeting last week, OPEC+ agreed to keep production in February and March unchanged for all 23 members bar Saudi Arabia, Russia and Kazakhstan. The latter two will increase output by 75,000 barrels a day. The UAE pumped 2.5 million barrels daily in December, making it OPEC’s biggest producer after Saudi Arabia and Iraq.
The Saudis’ decision to cut production for two months comes amid renewed lockdowns in Europe and Asia and a spike in US cases. Those have forced OPEC+ to slow the pace at which it eases last year’s curbs.
“We are the lowest-cost producers as OPEC countries,” he said.
Abu Dhabi plans to expand production capacity to 5 million barrels a day by 2030 from 4.2 million now and to start trading its Murban crude on an exchange this quarter, in an attempt to make it a benchmark for Middle Eastern oil. Those moves “will enable us to compete and will enable us to put those volumes because they will be needed,” Mazrouei said.
In the more immediate term, the market’s ability to absorb the return of the Saudi barrels in April will depend on whether vaccination roll-outs in major economies are successful, Mazrouei said.