Crude Oil ( ) Brent Crude ( ) Natural Gas ( ) S&P 500 ( ) PHLX Oil ( )

OPEC, Russia said they are not worried about U.S. shale production

OPEC and non-OPEC producers are off to a good start in meeting the goals set in a production cut plan initiated at the start of the year, according to the group.

OPEC’s Joint Ministerial Monitoring Committee (JMMC), designed to check compliance among the countries that have agreed to cut production, met for the first time over the weekend. The JMMC said that the group of producers has already cut 1.5 MMBOPD of the agreed 1.8 MMBOPD.

“The deal is a success …All the countries are sticking to the deal …(the) results are above expectations,” Russian Energy Minister Alexander Novak said after the first meeting of a committee set up to monitor the deal.

Eleven of OPEC’s 13 members along with 11 non-OPEC countries have agreed to make cuts for the first half of the year. The group of producers could cut production a further 0.2 MMBOPD by the end of the month, Reuters reported.

“The Kingdom [of Saudi Arabia] has taken the initiative and other countries took part in very significant actions,” Saudi Energy Minister Khalid al-Falih told reporters following the meeting.

“Despite demand usually being lower in the first quarter in winter, the actions taken by the Kingdom and many other countries has impacted the market in a tangible way and we have seen the impact in spot prices,” al-Falih said.

Market balance could happen this quarter – UBS

Al-Falih said he hoped to see 100% implementation of the cuts by February.

A high level of compliance on the production cuts could mean market balance sometime in the next three months, a report from UBS said Monday.

“Incorporating the IEA’s (International Energy Agency) baseline demand revisions would, all else equal, bring forward our projected rebalancing from 2Q17 to 1Q17,” said UBS analysts Jon Rigby, William Featherston and Joseph Head in the report.

Once the oil market is balanced and the pace of inventory drawdowns increases, UBS predicts oil prices could rise by $5 to $10 per barrel. Rising oil prices should encourage more U.S. production, which may be needed to keep the market in check.

“If U.S. supply is less responsive that we envisage, however, then there is a risk the market overtightens, sending Brent above our $60 to $80 per barrel incentive range and laying the foundations for another price cycle.”

Markets waiting for more proof of compliance

Despite the bullish picture pained by the JMMC meeting over the weekend, markets continue to wait for further proof that the cuts are being implemented in the manner OPEC claims publically. Official production data will not be published until later this month, which will give a clearer idea of just how much production is truly being cut.

The OPEC Secretariat agreed to present a monthly production data report on OPEC member countries’ crude oil production, as well as the liquid production of non-OPEC members taking part in the deal, to the JMMC by the 17th of each month for the remainder of the production deal.

Both U.S. and international crude oil benchmarks were down Monday morning despite the news that the parties involved in OPEC’s production cuts were complying.

OPEC “not worried” about U.S. shale production

OPEC ministers also noted that any increase in shale production from the U.S. would be met by higher demand following the meeting this weekend.

“We are not worried that production in the U.S. is increasing as prices go up because I think this will be absorbed by an increase in demand,” Kuwait Oil Minister Essam al-Marzouq said.

Qatari Energy Minister Mohammed Al-Sada said with increasing demand “shale oil will all be catered for.”

Russia’s Novak also said he was not worried about higher oil output in the United States.


Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.