The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu has described the ideal price for crude oil to be at $60 a barrel for the Organisation for Petroleum Exporting Countries, OPEC, stressing that a higher price risk sparking a recovery in competing supplies from the U.S. shale oil.
The minister stated this while speaking in a Bloomberg Television interview yesterday.
Speaking of what the Television described as the “urgency” felt by OPEC and its partners to end the oil output will ensure they adhere to their December 10 agreement to cut supplies, the minister said the accord should push prices which is at about $56 today a bit higher, yet not enough to trigger a comeback in U.S. shale, according to the minister.
“Sixty, I think would be ideal,” he said. “Once you begin to trend past the mid-$60s, you’re going to have a surfeit of shale producers jump back into the market. Technology is improving with shale every day, and so the cost of production is continuing to drop.
Meanwhile, oil prices have surged after oil producing countries that are not OPEC members agreed to cut output.Brent crude jumped to $57.89 a barrel -the highest since July 2015-before falling back to $56.79, although that was still a gain of 4.5% on the day.
On Saturday, non-OPEC countries agreed to cut their output by 558,000 barrels a day in a deal designed to reduce oversupply and boost prices. OPEC announced last month that it would be cutting its own production.
The OPEC committed to halting the supply of 1.2 million barrels a day, starting from January. The new deal is the first global pact in 15 years. “Once cuts are implemented at the start of 2017, oil markets will shift from surplus into deficit,” said analysts at AB Bernstein.
But some analysts have expressed doubts about the deal’s long-term impact on prices. Thomas Moore, investment director at Standard Life Investments, told BBC Radio 5 live: “You will see the oil price jump this morning – that’s understandable – but I think you need to put it in context.
“This is a cut of 550,000 barrels a day, and of course we have had about a million off OPEC production. But if you think about overall world production, OPEC’s producing 33 million barrels per day, so those numbers of 1.5 million are good, but they are not that good.
“And OPEC accounts for only about 40% of world crude production, so yes, there’s a day-one impact, but I think it’s at the edges here.”
Those taking part in Saturday’s deal included Russia – which will provide the lion’s share of the cut – as well as Mexico and Bahrain among others. It comes after more than two years of depressed oil prices, which have more than halved since 2014 due to a supply glut on the market.