In December, the world’s petro-states congratulated themselves for what they called a historic achievement—24 of them agreed to cut their collective production by 1.8 million barrels a day, all in the service of bringing order to a chaotic oil market in which prices had plunged to about $27 a barrel. Among the most surprising things was the involvement of Russia, traditionally an outsider that refused to cooperate with OPEC.
Today, all of that seems to be in shambles. Since March 7, oil has again been in free fall. Internationally traded Brent crude is down 9% in March, and, as of this writing, by 1.7% today, to $50.48 a barrel. US-traded West Texas Intermediate (WTI) is being pummeled even worse—it is down by 2% this morning, to $47.41 a barrel.
Russia, for one, is not amused. In an exchange of messages with Reuters, Rosneft, Russia’s top oil company, said that the longer-term trend is for a balanced oil market, but that meanwhile “the risk of a price war resuming remains.” Saudi Arabia appears to feel the same: After reducing its production to 9.8 million barrels a day in January, it said today that it tacked back on over 10 million in February—which was the news that pushed down prices this morning.
The problem is that, despite the production cut, the world is awash in oil. Russia itself pledged to reduce by 300,000 barrels a day along with OPEC, but has cut less than half of that.
But the main culprit is US shale, which according to the US Energy Information Administration (EIA), is surging back into the market—even though prices are dropping, they are still much higher than their 2016 lows. Look at the longer-range chart.
In April, according to the EIA, US shale oil production will reach almost 5 million barrels a day, its highest since March 2016.
The OPEC-Russia production cut accord is good only until June, after which they were considering a six-month extension in order to burn through global stockpiles and stabilize prices. But with shale drillers playing no part in any cut, that extension seems unlikely now. Instead, it looks like we’re back to every country for itself.