The picture isn't clear: is OPEC cutting its production as promised, or are its members cheating, as usual? That question has been causing the vacillation in crude oil prices over the past few weeks, but there has been a significant rise of approximately US$7 per bbl over the past two monthsa rise that is driving optimism in the upstream industry, as witnessed the boom-days hoopla at this year's OTC blowout in Houston the first week of May.
Naysayers' nigglings about the need for a market adjustment notwithstanding, there is a growing necessity for evidence of OPEC compliance if the heady prices are to continue. We need to know that output has dropped by something near the promised 1.7 million b/d in April to have our belief in the recovery sustained.
Oil at $19 a barrel is profitable oil, oil that can fuel industry growth, wider and deeper explorations, more field developments, and significant production worldwide. The price of crude rose to that level the first week of May, but has dropped back a bit now to $18.23still an excellent and viable rate. Yet there is a tremor of doubt disturbing the industry and perpetuating the caution we have learned to employ: how much is OPEC cheating, if it is cheating. Some say the promise is being kept but others estimate adherence to the March promised levels of production range from 60% to 80%. If the latter is true, oversupply of the 73 million b/d market will continue.
Everyone's waiting for the proof, for the other shoe to dropand with it the price of oil by $2 or moreor for reduced capacity and an additional increase in price by $2 or more. Everyone wants to know whether they should go ahead with a merger or go it on their own, whether they should invest in new fields or wait for better times, whether they should buy new equipment or make do with what they have. And oil companies are unsure whether to go ahead with added refinery output when the prospect of even higher prices loom ahead.
If you believe the delegates and exhibitors at this year's Offshore Technology Conference, the recovery is real and we can get on with the business of producing oil and gas. But old habits die hard: OPEC members have always cheated on their quotas, why not on their promised production levels, too?
The Organization of Petroleum Exporting Countries makes no announcements of its output, official or otherwise, but leaves the arcane calculations to analysts who log tanker traffic and try to derive some measure of the market. According to the Wall Street Journal, Venezuela and Qatar have been the least cooperative in reducing their production levels, while Saudi Arabia, Iran, and the UAE have come close to keeping their promises.
So, it all comes down to waiting until June, when the truth will become evident in production figures from all quarters.