{"id":77244,"date":"2023-10-26T19:58:08","date_gmt":"2023-10-26T23:58:08","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/u-s-is-set-to-play-tug-of-war-with-opec-for-oil-market-share-as-middle-east-hostilities-warrant-output-boost\/"},"modified":"2023-10-26T19:58:11","modified_gmt":"2023-10-26T23:58:11","slug":"u-s-is-set-to-play-tug-of-war-with-opec-for-oil-market-share-as-middle-east-hostilities-warrant-output-boost","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=77244","title":{"rendered":"U.S. is set to play tug of war with OPEC+ for oil market share as Middle East hostilities warrant output boost"},"content":{"rendered":"
Oil production cuts this year by the Organization of the Petroleum Exporting Countries and their allies have given the U.S. the price incentive it needed to lift domestic output to its highest level on record, and maybe even helped fuel the recent mergers among the big oil companies. <\/p>\n
Risks tied to hostilities in the Middle East, meanwhile, have provided another reason for the U.S. to boost oil production, defying efforts by other major producers to limit market supplies and keep prices high \u2014 and potentially setting up a fresh global fight for oil market share. <\/p>\n
\n
\u201cThe war in the Middle East and the risk of supply disruptions are long-term factors favoring investment in U.S. oil production,\u201d Alex Kuptsikevich, senior market analyst at FxPro, wrote in recent commentary.<\/p>\n
The countries that are part of OPEC+, which is comprised of the Organization of the Petroleum Exporting Countries and their allies, \u201chave the spare [output] capacity but artificially limit production to support the price,\u201d said Kuptsikevich. Perhaps they also see this trend of factors supporting oil investment, he said. <\/p>\n
<\/p>\n
<\/p>\n
\n
\n \u201c<\/span>\u201d This could be a prologue to a shift in focus from the battle for profits and the final price of crude, to a war for market share.\u201d \u201d<\/span>\n <\/p>\n
\n \u2014 Alex Kuptsikevich, FxPro<\/span> \n <\/small><\/p><\/div>\n<\/p><\/div>\n
\u201cThis could be a prologue to a shift in focus from the battle for profits and the final price of crude, to a war for market share,\u201d he said.<\/p>\n
U.S. oil moves<\/h2>\n
In the U.S., oil production has climbed to 13.2 million barrels a day, according to the Energy Information Administration. That\u2019s the highest based on data going back to 1983. <\/p>\n
Read:<\/strong> U.S. oil production hits record as Israel-Hamas conflict stokes global supply fears<\/p>\n
Data from Baker Hughes \n BKR, \n +2.94%<\/bg-quote> \n have also shown two consecutive weekly increases in the number of active U.S. rigs drilling for oil to total 502 as of the week ended Oct. 20. <\/p>\n
U.S. producers may have been spurred on by the fact that crude-oil inventories are now 4% lower than a year ago and close to their lowest since 2015, when the shale boom was in full swing, said Kuptsikevich. <\/p>\n
<\/p>\n
<\/p>\n<\/p>\n
<\/div>\n<\/figure><\/div>\n
They may also be encouraged by the U.S. government\u2019s move to buy oil for the Strategic Petroleum Reserve, he said. <\/p>\n
The U.S. Energy Department announced last week that it will post monthly solicitations to purchase oil for the reserve through at least May 2024 in an effort to replenish it following historic drawdowns last year. <\/p>\n
Major oil companies have also announced mergers in recent weeks.<\/p>\n
Exxon Mobil Corp. \n XOM, \n -0.91%<\/bg-quote> \n announced a deal on Oct. 11 to buy shale driller Pioneer National Resources Co. \n PXD, \n -0.86%<\/bg-quote> \n in an all-stock deal valued at $59.5 billion. Then on Oct. 23. Chevron Corp. \n CVX, \n -0.72%<\/bg-quote> \n said it reached an all-stock deal valued at $53 billion to buy Hess Corp. \n HES, \n -0.79%<\/bg-quote>.<\/span>\n <\/p>\n
\u201cNow it\u2019s clear what the U.S. oil majors have been saving up for,\u201d said Kuptsikevich.<\/p>\n
Oil company mergers<\/h2>\n
The mergers among big oil companies has been \u201cmostly driven by continued capital discipline with major themes being lower cost of production, and large, untapped reserves,\u201d Dan Pazar, executive vice president at investment consultant Taiko, told MarketWatch.<\/p>\n
Exxon is \u201ccontinuing to leverage operating efficiency and pointing resources to some of the highest returning wells in the U.S.,\u201d he said. With the purchase of Pioneer, it continues to \u201cget more efficient in the cheapest part of the U.S. to produce a barrel of oil,\u201d he said, noting that Pioneer produces oil at $35 a barrel. <\/p>\n
For Chevron, by acquiring Hess, it\u2019s continuing to diversify its portfolio, said Pazar. It gets additional shale assets in the Bakken \u201cwith infrastructure to boot\u2026and access to the Guyana bonanza right there with Exxon.\u201d Chevron has called Hess\u2019s Stabroek block oil project in Guyana an \u201cextraordinary asset.\u201d <\/p>\n
Overall, U.S. oil companies are \u201cin great strategic positions and if they have the capacity to turbo charge production if oil prices see $130, they would probably look to take advantage of that if other producers (countries) didn\u2019t,\u201d said Pazar. <\/p>\n
Middle East risks<\/h2>\n
The Oct. 7 Hamas attack on Israel, meanwhile, has increased volatility, as well as the potential for the oil market to see sudden disruptions and price spikes. <\/p>\n
The Israel-Hamas conflict \u201cremains top of mind and the threat to the region\u2019s oil resources and infrastructure continue to warrant a fear bid in the oil market,\u201d said Tyler Richey, co-editor at Sevens Report Research. \u201cHowever, the lack of material escalation since the initial attacks by Hamas has seen some of that fear bid unwind as the conflict has been largely contained up to this point.\u201d<\/p>\n
Oil prices have climbed since the start of the conflict, but haven\u2019t managed to climb back to the highs of the year reached in late September. <\/p>\n
\u201cNoise around geopolitical events\u201d have been causing \u201csmall but not withstanding adjustments in price,\u201d said Katy Kaminski, chief research strategist at AlphaSimplex.<\/p>\n
On Wednesday, U.S. benchmark West Texas Intermediate crude \n CL.1, \n +0.37%<\/bg-quote><\/p>\n
CLZ23, \n +0.37%<\/bg-quote> \n saw its December contract end the session at $85.39 a barrel on the New York Mercantile Exchange, up 2% for the session. Global benchmark Brent crude\u2019s December contract \n BRN00, \n +0.28%<\/bg-quote><\/p>\n
BRNZ23, \n +0.26%<\/bg-quote> \n climbed by 2.3% to settle at $90.13 a barrel on ICE Futures Europe.<\/p>\n
\u201cIn the end, the oil price range seems mostly driven by supply and demand imbalances,\u201d said Kaminski. \u201cThe supply side will likely be driven to action should prices move out of range, while demand will be much more dependent on whether economic conditions begin to contract due to tighter policy.\u201d<\/p>\n
OPEC+ cuts<\/h2>\n
Before the war began in the Middle East early this month, OPEC+ agreed in June to extend previous production cuts through the end of 2024. <\/p>\n
Saudi Arabia had said at the time that it would voluntarily cut oil production by an additional 1 million barrels a day in July and has since extended that cut to the end of the year. Russia had pledged to cut its exports by 500,000 barrels a day from March through year end. <\/p>\n
\u201cSome of the bullishness surrounding the prolonged and disciplined OPEC+ output cuts has been tempered by the meaningful rise in [U.S.] production in recent months as a significant portion of those cuts is being offset by new barrels being lifted in the U.S.,\u201d said Richey. <\/p>\n
OPEC+ hasn\u2019t hinted at any changes to its plans. The next official ministerial meeting is scheduled for Nov. 26.<\/p>\n
Oil prices are \u201cartificially\u201d high right now because of the supply cuts led by Saudi Arabia and Russia, said Richey. Those higher prices are \u201cinviting capitalists in the U.S\u2026.to take the risk of getting into the oil business and investing in oil production\u2026to benefit from the strong oil-price environment,\u201d he said.<\/p>\n
For now, Richey believes OPEC+ producers realize that \u201cgiving up a modest amount of market share to the U.S. amid still rising global demand is worthwhile, as they will get to enjoy having a \u2018slightly smaller piece of a much larger pie\u2019.\u201d <\/p>\n<\/p><\/div>\n