After pulling off the biggest oil-market deal in a decade, OPEC faces a new balancing act in 2017: boosting prices without igniting shale.
The first shale boom spurred a global supply glut that started prices sliding in mid-2014, and was amplified that November by a pump-at-will OPEC strategy aimed at market dominance. During the ensuing rout, prices in New York fell from more than $100 a barrel to $26.05 in February, straining the budgets of companies and countries alike.
Now, the Organization of Petroleum Exporting Countries has a new plan for 2017: Trim output, boost prices and better exploit the world’s most significant natural resource. With the cuts, prices could average $58 a barrel, according to the median of 24 analyst estimates compiled by Bloomberg. While that 29 percent gain on this year’s average will aid OPEC members, it could also spur U.S. drillers to add rigs.
“OPEC is aiming for a much-needed lift to the oil price, given the stretched fiscal balance sheets of every producing nation,” said Ed Morse, head of commodities research at Citigroup. “The question really should be what happens afterwards — how fast is U.S. shale going to come back?”
At 8.8 million barrels a day, the U.S. is already pumping almost as much crude as two years ago, with just a third of the rigs it operated at the peak, data from Baker Hughes Inc. and the Energy Information Administration show. Since May, drillers have added about 200 rigs, taking advantage of rising prices as talk of an OPEC supply cut circulated.