OPEC Head Dines With US Shale Bosses As Tight Capacity Sparks Concerns
OPEC Chief Haitham Al-Ghais and top US shale bosses wined and dined on Monday evening at a Houston energy conference to discuss the alarming concerns about the lack of global spare production capacity, according to Bloomberg.
Al-Ghais is the 29th Secretary General of OPEC. He assumed office last year and had his first private dinner with Chesapeake Energy Corp CEO Nick Dell'Osso, Pioneer Natural Resources CEO Scott Sheffield, Hess Corporation CEO John Hess, Occidental Petroleum CEO Vicky Hollub, Talos Energy CEO Tim Duncan, and Devon Energy Inc. CEO Richard Muncrief on the sidelines of the energy conference CERAWeek by S&P Global.
Bloomberg spoke with two shale bosses who attended the dinner. They said the main takeaway was that the global oil market has very little spare capacity.
- Devon Energy's Muncrief said, "There's not a lot of spare capacity right now."
- Hess Corp.'s Hess said lackluster production is certainly a "challenge."
Previously, OPEC regarded shale as an uncontrolled force that undercut its revenue by bringing new oil supplies to the market. However, relations between OPEC and shale companies have dramatically improved in recent years as shale has been more reserved about increasing production while rewarding shareholders with stock buybacks and dividends. This has led to a slowdown in production.
Pioneer's Sheffield told Bloomberg in an interview at CERAWeek that the Permian Basin will peak in five to six years -- another worrying sign about tight capacity.
Last year, Saudi Arabia, the world's largest crude oil exporter, warned the world is structurally short production capacity at a time demand growth remains robust.
Tight capacity comes as the International Energy Agency forecasts oil demand to exceed supply later this year as China's reopening increases oil consumption. Also, Russia has reduced oil production, and OPEC pledged to hold its own production steady after agreeing to a 2 million barrel-a-day cut last year. There are limited signs in the US that shale companies will boost production significantly this year.
Meanwhile, Jose Fernandez, Undersecretary of State for Economic Affairs, Energy and the Environment, said at the energy conference that the Biden administration would like to "see more consumption. And therefore we'd like to see supply meet demand."
Now, the strategic petroleum reserve is at four-decade lows because of the Biden administration's relentless drain to cap oil prices. There's a bigger problem at hand, and it's all about spare production capacity. This might be enough to shift crude prices back to triple-digit territory per barrel later this year or next if demand remains robust and the Federal Reserve and other central banks don't spark a worldwide depression.
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