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Editor’s Comment: The balance of power

by Jonathan Sheikh-Miller on Feb 10, 2018

This is my first editorial as the new editor of Oil & Gas Middle East and I am thrilled to lead a title that represents such a key sector within the region.

If 2018 has started on an upbeat note for me then it has been a pretty positive year so far for the oil producers of the Arabian Gulf. Brent crude prices have been on a surprisingly strong run since a cacophony of fireworks ushered in the New Year.

Prices recently brushed $70 a barrel, their highest level for three years, and the hydrocarbon-dependent economies within the Middle East have seemingly found much calmer waters than the tempestuous seas of early 2016 when oil prices were less than half what they are now.

However, appearances can be deceptive. Under the surface lurk some rather strong undertows. On the face of it OPEC’s Saudi Arabian-led production cuts have finally bitten into US crude inventories, which have now dipped below their five-year averages. When the world’s superpower is running a little light on oil, prices should remain firm.

The spike in the oil price might also have cooled the fevered brows of one or two finance ministers in the Arabian Peninsula, whose hopes of avoiding another stinging fiscal deficit this year looked slim just a matter of weeks ago. But there is a chance they will ultimately be disappointed.

Just as some analysts predicted, rising prices have merely provided a shot in the arm to the US tight oil sector; with Brent crude costing over 40% more than it did last summer, it may be no coincidence the US oil rig count is almost 200 rigs higher than it was twelve months ago.

The International Energy Agency (IEA) is predicting “explosive growth” in US production in 2018, with an extra 240,000 barrels per day (bpd) taking it past a total of 10 million bpd – even outstripping Saudi Arabia’s currently reined in supply.

If the IEA’s predictions are accurate, US producers could realistically hamstring the OPEC cartel’s attempts to control global inventories and prices. The IEA’s latest monthly report speculates whether an oil price of $70 is “plenty”? We shall see.


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