US shale oil producers pummeled after OPEC decision
Fears low oil prices will persist for years sent shares of US crude producers tumbling on Friday after OPEC failed to agree on a unified output cap, effectively letting its 13 members pump at will under a policy aimed in part at squeezing out US rivals.
OPEC ministers, who control a third of the world’s oil supply, ended their meeting in Vienna on a discordant note, unable to decide as a group how much it should pump in aggregate. It appeared for a while OPEC would raise its current 30 million barrels per day (bpd) cap on production, but negotiations broke down after Iran said it would not accept any limits until it emerges from Western-imposed sanctions.
Iraq’s oil minister echoed those sentiments, asking after the meeting why OPEC members should accept a production cap if non-OPEC oil producers do not have one. The comments exacerbated oversupply worries and sent US oil prices below $40 a barrel, dragging down US energy stocks. Global oil prices have already dropped more than 50 percent in the past year, and futures trading indicate Wall Street does not expect them to rise above $50 per barrel until July 2017 at the earliest.
Tim Rezvan, an oil analyst with Sterne Agee CRT, called the outcome a “bearish near-term event” for the US oil industry. OPEC gave a tacit acknowledgement that its policy of flooding the globe with crude is harming rivals. In a statement, the group noted that it expects non-OPEC supply of oil to actually contract next year, even as demand rises. Shares of Whiting Petroleum Corp, Continental Resources Inc and Oasis Petroleum Inc, top North Dakota oil producers, each fell more than 5 percent. Marathon Oil Corp, Hess Corp and Occidental Petroleum Corp each fell between 1 to 2 percent. Most stocks pared earlier losses.
Signaling further pain, the US oil drilling rig count fell this week for the 13th week in the last 14, down to 545, about a third of the number operating this time last year. Not all of OPEC’s members are comfortable with low prices. Many, including Venezuela, need higher oil prices to balance their national budgets.
Given that need, some in the US oil industry hoped OPEC would actually lower production, an expectation that now seems misguided as Saudi Arabia, the group’s de facto leader, has pursued a strategy of high production to rattle US rivals.