As US oil production climbs OPEC sees prices fall – PB/TK
The Price Of Oil Falls As OPEC’s Saudi Arabia, Kuwait And Iraq Want Cost Raised – BY
After initially aiming to boost crude oil prices to $55 a barrel, key OPEC members like Saudi Arabia, Kuwait, and Iraq have now set their sights on $60 a barrel of oil.
This target — along with rumors that OPEC would extend the production cuts announced last November — helped spur an oil rally earlier this month. However, crude prices have fallen back toward $50 a barrel again in the past week or so.
Indeed, the rapid rebound of U.S. oil production will make it very difficult for oil prices to reach $60 a barrel on a sustainable basis. Low-cost producers like Continental Resources (NYSE:CLR) and EOG Resources (NYSE:EOG) have shown that they will ramp up production long before oil hits $60 a barrel. Thus, unless Saudi Arabia is ready to lead an even bigger OPEC production cut, oil prices are likely to stay grounded for the foreseeable future.
U.S. production takes off
U.S. drilling activity plunged beginning in late 2014, bottoming out about a year ago. But drilling activity bounced back very quickly once oil prices started to recover from the lows of early 2016. The U.S. oil rig count has more than doubled over the past year, although it remains well below 2014 levels.
Moreover, U.S. oil producers have become vastly more efficient in the past few years. To some extent, this has come from renegotiating oil-field service contracts and from focusing on drilling in the best locations. However, there have also been meaningful operational improvements to reduce costs and improve output for each well.
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