National representatives from the Organization of Petroleum Exporting Countries and officials from several non-members heard a presentation on the outlook for the U.S. industry from Roger Diwan, a Washington-based analyst at IHS Markit Ltd., according to delegates familiar with the matter. Mark Papa, a partner at private equity firm Riverstone Holdings LLC and former boss of shale pioneer EOG Resources Inc., also spoke to the group, delegates said.
The emphasis on U.S. production underscores the dilemma for OPEC and its allies as they consider whether to extend their cuts beyond June. The producers, who together account for about half the world’s oil supply, have seen the initial price boost from their historic agreement fade as shale companies deployed more rigs and raised the country’s output to the highest since 2015. That recovery could accelerate if they decide on May 25 to prolong the curbs.
Total U.S. output will grow by 700,000 to 1 million barrels a day from the beginning to the end of this year, Diwan said in his presentation, the delegates said, asking not to be identified because the meeting was private. Papa, who helped create the shale industry more than a decade ago, gave an even more bullish outlook, citing the prolific Permian basin in Texas, one of the delegates said.
That compares with a supply reduction of 1.2 million barrels a day implemented by OPEC, plus a cut of less than 400,000 barrels a day from non-members.
OPEC is widely expected to prolong its supply curbs, and all producers are backing a nine-month extension, Saudi Arabia Oil Minister Khalid Al-Falih said Saturday.
“We think we have everybody on board,” Al-Falih said in an interview with Bloomberg television in Riyadh. “Everybody I’ve talked to indicated that nine months was a wise decision.”
OPEC’s Economic Commission Board, a panel of representatives from member countries that meets to discuss the market before every ministerial meeting, was considering the implications of various scenarios including extended production cuts, deeper supply reductions and the expiry of the curbs in June, the delegates said. Officials in Vienna didn’t recommend a specific course of action, the delegates said.
Out of these three choices, an extension is most likely, analysts from Bank of America Merrill Lynch said in a note to clients.
“If OPEC cuts production even more, it will likely lose additional market share to U.S. shale and prices may not move up much more,” the bank said. “Conversely, if OPEC hikes output, oil prices could collapse to $35 a barrel, setting the cartel on an even more difficult fiscal path. In our view, most OPEC members cannot afford either scenario at this point.”