Members of Organization of the Petroleum Exporting Countries have agreed to extend current production limits through 2018, providing reassurance for breakbulk operators and a boost for investment in the sector.
The current production caps, agreed by OPEC earlier this year, have been extended to include Nigeria and Libya, and will last throughout 2018 in a bid to sustain higher oil prices and maintain confidence in the sector.
“In view of the uncertainties associated mainly with supply and, to some extent, demand growth, it is intended that in June 2018, the opportunity for further adjustment actions will be considered based on prevailing market conditions and the progress achieved towards rebalancing of the oil market at that time,” OPEC said in statement
Breakbulk operators serving the oil sector have faced a difficult outlook for 2018 as weak oil prices have made forecasts difficult and cast doubt on many construction or renewal projects and it is hoped the extension will provide a more positive operating environment.
“Without the extension of the cuts the market would have reverted to excess supply and potentially materially lower oil prices in 2018,” said Matt Cook, senior analyst at consultancy Westwood.
Oil dips below US$58 as shale growth remains threat
Despite the show of support from OPEC the price for WTI Crude has dropped below US$58 per barrel since the announcement last week as investors remain cautious of an increase in U.S. drilling rigs against OPEC’s cuts
“The OPEC deal will mostly work for non-OPEC … Even if OPEC delivers the cuts promised, and prices stay high long enough, the main result will be that U.S. shale adds on close to 1 million barrels a day of additional production,” said Eugen Weinberg, analyst at Commerzbank.
Three of the largest independent U.S. shale producers – Pioneer Natural Resources, Parsley Energy and Newfield Exploration – have agreed, however, that they won’t increase activity to take advantage of prices rises, but will maintain spending discipline and generate profits instead.
U.S. petrochemicals drive further breakbulk growth
Whether independent shale producers decide to grow shale exports or not it seems certain that U.S. shale production will flourish as domestic petrochemicals demand grows.
According to the American Chemical Council, or ACC, new petrochemical project announcements linked to shale are now valued at $185 billion, from more than 310 projects and these construction projects are forecast to drive a new wave of demand for breakbulk services, with the Gulf region dominating and increasing interest in the Northeast region.
“Investment will translate into an estimated 821,000 permanent new jobs by 2025 … This is the equivalent of 40 percent of the replacement value for the entire U.S. chemical industry stock. The advantages for the Appalachia chemicals and plastics industry are huge,” said Martha Moore, senior director of economics at ACC.