Opec fears oil price rally may boost shale output in US

DUBAI • Oil's price rally this year to its highest since May 2015 may seem a source of glee for Opec, but some in the producer group fear the gains could prompt shale companies to crank open their spigots and flood the market.

Benchmark Brent crude rose further above US$68 a barrel on Tuesday, supported by oil output cuts - led by the Organisation of the Petroleum Exporting Countries and its allies including Russia - that are due to run until the end of this year.

The surge comes as a welcome boost for the revenues of oil-producing nations, many still reeling from a price collapse that started in mid-2014 when crude began to fall steeply from above US$100 per barrel due to oversupply.

Some in Opec are worried a prolonged rally could stimulate more US shale oil output, however, creating more oversupply that could weigh on prices and market share.

"We all are excited about the rally and want to see if it will be sustainable during the year, as it will certainly whet the appetite of shale producers," an official from an Opec country said.

Opec has no formal target for oil prices.

However, Saudi Arabia, Opec's top producer, wants to see crude above US$60 to boost the valuation of its national oil company Aramco before an initial public offering of shares this year, and to reduce the gap in its state budget, Saudi sources have said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on January 11, 2018, with the headline 'Opec fears oil price rally may boost shale output in US'. Print Edition | Subscribe