Shaken Opec seeks to work alongside shale oil producers

OPEC and non-OPEC countries recently agreed to extend oil output curbs by nine months, keeping roughly 2% of global production off the market in an attempt to boost prices. The decision was met with mixed reactions from the market, leading to a drop in oil prices. Dolapo Oni, Head of Energy Research at Ecobank, highlighted the challenge OPEC faces in managing production cuts while shale oil producers continue to ramp up production. The market's initial reaction to OPEC's decision was a decline in oil prices, dropping from a high of $54 to $50 per barrel within days. The 1.2 million barrel per day cut by OPEC was offset by the increase in shale oil production, creating a supply glut in the market. The lack of further cuts from OPEC raises concerns that shale producers could fill the gap, leading to a continued oversupply and potential further price drops. Oni discussed the limitations of shale production, noting that refinery distillation unit capacity in the US poses a constraint on shale oil's ability to flood the export market. However, with profitability in shale formations at prices as low as $35 per barrel, shale producers can withstand market pressures for an extended period. In order to address the challenge posed by shale oil production, Oni suggested that OPEC should focus on increasing its market share and engaging non-OPEC countries in production cuts. By expanding OPEC's influence and adherence to output curbs, the organization can have a greater impact on stabilizing prices and balancing global oil supply. The discussion also turned to Nigeria's oil sector, where Oni highlighted positive developments, including the country's return to 2.2 million barrels per day production levels and progress on regulatory issues like the recently passed Petroleum Industry Governance Bill (PIGB). While challenges remain, such as securing the president's approval for the PIGB, Nigeria's oil industry shows signs of improvement and continued growth. As OPEC navigates the complex landscape of global oil production alongside the rise of shale oil producers, the path ahead remains uncertain. Balancing market dynamics, geopolitical factors, and technological advancements will be crucial for OPEC to adapt and thrive in an evolving energy environment.