In what appeared to be one of the less enthusiastic meetings of the last few years, the OPEC and the allies have overturned their production cuts this March 2020, signaling that the oil market is still overcrowded and demand growth appears more weak at least for 2019.
The mission of the OPEC to reduce excess inventories, if successful, would lead to an increase in oil prices, which the cartel members must balance their budgets, most of which are excessively dependent on exports of Petroleum.
However, higher oil prices are inadvertently helping shale production in the US to continue to grow, offsetting most of the barrels that OPEC is holding back from the market.
It seems that the cartel is now proposing to raise oil prices and will be thinking of regaining market shares later.
Currently, the OPEC and its non-OPEC partners led by Russia in the production reduction operation focus on inventory reduction and price increases, even if it means giving up market share and bring down the OPEC share of world oil production below 30 percent for the first time in 1991, according to Bloomberg News estimates.
But the "free pass" of the OPEC for the United States will not last long, according to JP Morgan. In the medium term, the cartel and its de facto leader and Saudi Arabia's largest producer will regain market share from the US shale, JP Morgan's head for oil and gas EMEA, said Christyan Malek CNBC this week.
Related: Putin: the volatility of oil prices is damaging Russia's economy
The Saudis and OPEC aim to "support oil while they are actually pregnant with all this economic growth and the capital they have to deliver. But, having said that, what we are saying to the bulls is: you don't get used to it", has called Malek at the CNBC Squawk Box Europe.
The cartel is now "two feet in the value field" that wants to raise oil prices, but the "acceptable" price level of oil is falling, Malek said.
"The bar continues to fall, it is only very gradual. In a few years I expect $ 50 to be an oil price, at which point it could see Saudi and OPEC claim that market share and then become more competitive," he said. # 39; executive of JP Morgan at CNBC.
"I have no doubt in my mind that the wake of the United States will peak, the plateau and then decline like any other basin in history," Saudi Energy Minister Khalid al-Falih said He said in Vienna this week, as reported by Bloomberg.
OPEC may have to wait at least half a decade to a decade to reach the United States like shale, as many estimates place the shale peak around 2025 or later.
But just waiting for the shale peak to come is not sustainable for OPEC – the longer it waits, the harder it will be to recover the share of the global oil market.
While the immediate OPEC objective is clear, analysts are wondering if these cuts could be sustainable in the long term and what the purpose of the cartel is.
The OPEC and the allies "do not have a clear endgame except to reject the unavoidable moment when the age of the abundance of the offer can no longer be withheld", has stated Ed Morse, Global Head of Citi Raw Material Research. CNBC. Related: Because natural gas prices have collapsed
The cuts are a "largely defensive" move, because the key factors for OPEC + producers are now their vulnerability to low oil prices and insufficient revenues, Morse said.
The extension of the OPEC + cuts should be seen as constructive, Warren Patterson, Head of the Raw Materials Strategy at ING, He said, forecasting higher oil prices from here for the rest of the year.
However, the market has not been impressed by the rollover of the cuts, to say the least, oil prices have reacted in the worst years to an OPEC meeting, falling more than 4%, as concerns over demand continue to exceed any bullish feeling.
"Then there is also the problem of how long-term these cuts are sustainable, given that US producers will be more than happy to fill the gap left by OPEC + cuts," said Patterson of ING.
The higher the price of oil that OPEC manages to squeeze out of the market through cuts, the more American shale, encouraged by higher prices, will compensate for these cuts.
The final game of the OPEC may not be clear, but its current goal of rebalancing the market (and supporting prices) comes with the sale of rival producers, especially in the United States.
By Tsvetana Paraskova for Oilprice.com
Other oil readings:
. (tagToTranslate) US (t) Shale (t) OPEC (t) OPEC Deal (t) Oil (t) Oil Supply (t) Oil prices (t) Russia (t) Saudi Arabia