Saudi Arabia is poised that their policy has worked in damaging the US Shale oil and it is highly likely that the biggest producer among its peers, will keep the output unchanged, if not increased. It is very vital that we do keep taps on the spare capacity equation. Saudi Arabia’s spare capacity literally dwarfs its competitors.
Having said that, the Saudi oil minister, has maintained his cloudy outlook and confirmed he is not sure how the quotas will be impacted on the 5th June. However, he has indicated that all stars are pointing in a correct direction and this clearly confirms the argument that the country is still determined to do some more damage to the US shale oil industry. It is very rich and clear that the country is only interested in maintaining its market share-not the price stability and gritty to do whatever it takes.he Saudis, who think that they are the central bank of oil, feel that this is their responsibility to keep the lights on fossil fuel, and the only way of doing this is by controlling the supply, which itself will dictate the demand equation. Higher oil prices were a threat to fossil fuel and lower oil prices are a peril to renewable energy. Although, OPEC has been in a business of forecasting their price for oil, but the underlying factor has always been demand, and this is the only element, which gains their most attention.
Nevertheless, the US shale oil was clearly creating another major supper supplier, but given how badly the price fell, it has capped the investment section in this area. However, we do believe that it is only a matter of time before the shale producers become immune to these threats due their more efficient approaches. They have already reduced their costs for a finished well by nearly 20% from its peak and another 10% reduction is on track by the end of this year.
For now, the focus remains towards the OPEC meeting and the OPEC members will meet on Friday 5th June and in the meanwhile every headline from OPEC officials /ministers could increase the volatility for the oil price.
We do think that the crude inventory data, which is due tomorrow, could show another drawdown and it could print the number near enough 59.7 million.