Saudi Arabia has found its sweet spot for oil and that number is $60.00 a barrel per Reuters. That is a number the Saudis believe will allow them to prosper and not be high enough to make U.S. shale output a major threat. Saudi Arabia knows that while higher prices for oil will allow some of the more economical shale plays like in the Permian basin to come back on line, it is still too low for some of the other shale plays that may need oil in the 70’s to make sense.
That is not stopping hot money from trying to secure shale fields. As investors start to realize that the big oil cap x retreat could reduce future oil production by 5 million barrels a day, the shale investment play is looking to try to fill a part of that void. That may be risky if OPEC decides to start another production war but that is a debate for another day. Right now, OPEC compliance is at an all-time high and even as the OPEC secretary general Mohammed Barkindo has shown a little disappointment with non-OPEC cooperation, the desire of Saudi Arabia to get prices higher should mean that OPEC cuts will be extended.
Barkindo told Reuters that the “worst was over” for the oil market. “For non-OPEC countries, this is the first time so we can expect teething challenges,” Barkindo told a conference in Abuja, Nigeria. “But the commitment from all ministers, all participating countries, is very strong. “We remain optimistic that the worst is over for this cycle,” he said, referring to market conditions. “Now the challenge is how to solidify the platform of 24 (countries),” he said, referring to 13 OPEC and 11 non-OPEC members. Signals are highly positive.” He also said the oil market needed every barrel which cut-exempted Iran, Libya and Nigeria could produce.
U.S. oil exports that are at a modern-day record, will continue to change the way U.S. oil inventories are viewed. We expect that we will see U.S. oil inventories start to fall as refiners start to come out of maintenance. Remember when the trade talks about inventories at a 30 year high and we could not export oil for the last 30 years.
