OPEC might need to consider deeper cuts in production to prop up oil prices, a source close to the group told state-run media in Kuwait. Photo courtesy of OPEC
June 12 (UPI) -- An OPEC-led agreement to balance the market with production declines is under threat from U.S. oil and Middle East producers, state media in Kuwait reported.
Members of the Organization of Petroleum Exporting Countries in January began implementing a deal to sideline the equivalent of about 2 percent of the global demand for oil in an effort to balance a market characterized by abundant supplies.
Of the 14 members of OPEC, Iran is the only member with room for production growth as it aims to retake a market share lost to sanctions imposed over its nuclear research program. Libya and Nigeria, meanwhile, are exempt from the agreement so they can rely on oil revenue to bolster national security and both countries have seen modest gains in recent weeks.
A source close to OPEC told the Kuwait News Agency, known also as KUNA, that recent declines in crude oil prices were in part due to continued supply-side strains from U.S. shale oil and the OPEC members exempt from the agreement.
Including cuts from other major producers like Russia, the arrangement idles about 1.8 million barrels of oil per day. In order to eat away at global oil supplies without harming consumer interest, the source told KUNA that OPEC should deepen the cut to 2.5 million barrels per day.
"U.S. President Donald Trump's intentions to sell half of the U.S. [strategic] oil reserve did not bode well with OPEC's efforts to maintain the oil price," the source added.
Crude oil prices dipped in May after the Trump administration called for the sale of about half of the 688 million barrels of oil locked in the Strategic Petroleum Reserve as part of a budget proposal. London broker PVM at the time said that, if implemented, Trump's proposal would "not create a worryingly oversupplied situation."
The OPEC-led effort helped establish a floor price for crude oil at around $50 per barrel and strives for a so-called Goldilocks value for oil -- one that's not so low that it hurts some parts of the sector, but not too high to drive substantial growth elsewhere.
OPEC chatter tends to emerge when oil prices are under strain. Crude oil prices suffered major losses last week, losing the hold on the $50 per barrel floor, but were up more than 1 percent and near the $48 range in early Monday trading.