Rising shale output depresses crude oil prices which may force Nigeria and Opec to act

NIGERIA and other Organization of Petroleum Exporting Countries (Opec) may be forced to decide on reducing supplies when they hold their next meeting on November 27 in response to falling global prices brought about by increased US shale production.

Over recent years, international crude oil has sold for about $100 a barrel but within the last month, they have dropped, with Brent Crude, which trade's at the same price as Nigeria's Bonny Light Crude falling to $85 barrel. With falling demand expected to depress prices further, Opec members are likely to react in a bid to boost the market.

Saudi Arabia, Opec's largest producer, surprised market watchers recently, when it refused to cut production while giving price breaks to Asian customers. However, the continued price fall may be too painful for other Opec members like Nigeria to stomach as it has the potential to disrupt all their budgetary plans.

Again Capital analyst John Kilduff, said: “I think there’s going to be big downward pressure on prices into the Opec meeting and the market is going to force their hand. I think Opec's actions would stabilise prices but the US shale numbers are unbelievable as we’re going to be pushing 10m barrels next year.”

 It is feared that Brent Light Crude oil prices could fall as low as $80 a barrel next year as analysts like Goldman Sachs expect oversupply to keep depressing the market. A combination of growing US oil production, currently about 8.9m barrels a day and weak growth in global demand has created a supply glut in the Atlantic and plentiful supplies worldwide.

Andrew Lipow, the president of Lipow Oil Associates, added: “Oil production is going up in the US over the next year and the dilemma for Opec is given the demand forecast, the US and Canada are able to supply the increase in 2015, eliminating the need for it to produce more oil. Any increase in demand is going to be met by increases in Canadian and US production, which leaves Opec on the sidelines.”

Saudi Arabia, in cutting prices instead of production, has been attempting to preserve its market share. Break-even oil prices for Saudi Arabia, based on budget requirements are at $89 a barrel but much higher for other producers like Nigeria at about $120 a barrel and the likes of Iraq, which requires $114 a barrel or Iran which needs to sell at $130 a barrel.

Mr. Liplow added: “I actually do think these oil prices are going to force Opec to act. Even though Saudis and Kuwaitis could stand an extended period of low prices, they live in a difficult neighbourhood and their neighbours cannot endure an extended period of low prices.”

According to figures produced by Citigroup, Kuwait break-even price is $44 a barrel, while it is $71 for Qatar. For Venezuela is at $161 and for Libya is at $185, while for Russia, who is not an Opec member, it is at $105 a barrel.

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