Drop in oil prices slows US shale production

Abu Dhabi: The Organisation of the Petroleum Exporting Countries (Opec), in its monthly report said the slide in oil prices is slowing down the growth of oil production in the US. However, this trend is not having any effect in the improvement of demand for Opec’s crude.

The organisation predicted weaker demand for Opec’s crude this year which will average 28.8 million barrels a day (mbd). This is about 100,000 barrels less than forecast last month.

Oil prices have been decreasing for the past few months. From a peak of $115 in June last year, prices have slid to less than $50 this month due to weak demand and oversupply in the market. Opec member countries decided not to cut production at a meeting in Vienna in November.

According to the report, the steep drop in global oil prices could cause problems to the output from marginal and unconventional sources.

The main reasons for the lower growth prediction in 2015 as per Opec are due to lower oil price expectations, the declining number of active rigs in North America, the decrease in the number of drilling permits in the US and the reduction in international oil companies’ spending plans.

Drop in oil prices has been causing a lot of difficulties for countries dependent on oil for revenue. Iran and Oman are likely to face budget deficits this year. Venezuelan president Nicolad Maduro has recently toured Gulf countries seeking cooperation to prop up oil prices. Energy ministers from Saudi Arabia and the UAE said that they will no longer dictate oil prices and leave it to the market forces to decide.

The UAE this week has ruled out any cut in oil output to stabilise oil prices, and placed the onus to cut production on the countries which are producing the most expensive oil.

“Everyone needs to make measures but those who are producing the most expensive oil, rationale and rules of the market say they should be the first to pull or reduce the production,” said the Energy minister Suhail Mohammad Al Mazrouei hinting at US shale production.

The report said the outlook for Middle East oil demand depends very much on the level of the overall economy and government spending plans with risk slightly skewed to the downside. Analysts have cast doubts whether Middle East countries would be able to spend enough on various development projects due to lower oil prices.