OPEC aims to increase oil prices to $60 a barrel by 2017

OPEC aims to increase oil prices to $60 a barrel by 2017

According to the media information, Saudi Arabia has an intention to increase oil prices to approximately $60 a barrel by the end of 2016. Some OPEC members, such as Kuwait, the United Arab Emirates, and Qatar, think this level can create favorable conditions for new fields investing without support for U.S. shale output.

The Organization of the Petroleum Exporting Countries along with other oil producers signed an agreement to reduce oil production by 1.8 million barrels per day (bpd), starting from January 1. As a result, oil prices rose by 14% since the deal was settled in November, but remained not far from $56 a barrel, even though OPEC and non-OPEC deal participants tried to follow their obligations.

Officially, OPEC did not announce a specific target price. They mainly tend to focus on market re-balancing and world oil inventories decrease. However, a source from Gulf oil industry informed that Saudi had an intention to increase oil price to $60 (or higher) by the end of the year. Low oil prices support financial pressure on OPEC resources and provide uncertainties for supply shortage in the future. On the other hand, high prices can stimulate U.S. oil production rivals to continue increasing output, which threatens OPEC’s production deal.

Shale oil production in the U.S. began increasing after crude prices had reached the level of $50 (May 2016), while the market had been trying to lower global oversupply for two years. General increase of U.S. oil rigs in May was estimated at more than 280. According to U.S. Energy Information Administration (EIA) forecastes, oil production can rise to 430,000 bpd between December 2016 and December 2017.

Meanwhile, some sources from OPEC stated that it would be hard to achieve the target price of $60 just because of oversupply slowdown. The market still can absorb shale oil production increase by 300,000 bpd or more during cold winter season. A sharp rise in demand during mentioned period of the year (the fourth quarter mostly) can help OPEC to achieve its goals, so the vital point is timing. To conduct this, OPEC has to extend the agreement to cut oil production or initiate more severe cuts to speed up global crude inventories drop.