The Organisation of the Petroleum Exporting Countries Secretary-General said on Sunday that the group’s exporters should not cut output to “subsidise” higher-cost shale, an energy source whose recent growth is blamed by OPEC for weakening oil markets.
Abdullah al-Badri added in remarks to a conference in Bahrain that tight oil, a term he has used for shale, was “not a challenge for us” but the market should now be left to decide which source of petroleum could survive at current prices.
Oil prices have sunk to near six year lows in recent months as a result of a large supply glut, due mostly to a sharp rise in U.S. shale production as well as weaker global demand.
The rapid decline has left several smaller oil producing countries reeling and has forced oil companies to slash budgets.
“We welcome tight oil… but this source of energy costs too much to produce. You cannot produce it at $70-$80 or $90, you need $100 plus to produce, sell it and make income out of it,” Badri said.
“OPEC cannot subsidise another source of energy — if we reduce (production) in November we will reduce in January. We will reduce in December. We will reduce maybe for another four to five years,” he said.
“We cannot every time keep reducing our production, it (tight oil) is not a challenge for us … we welcome it, but let the market decide now.”
Badri also said that OPEC and non-OPEC producers should work together to stabilise markets, suggesting oversupply could amount to two million barrels per day (bpd).
Since 2008, supplies from non-OPEC producers had risen by almost six million bpd, he said. In contrast, OPEC production had been fairly steady at about 30 million bpd.
Badri said the market’s “true picture” would not be apparent until the end of June, adding he had no doubt markets would return to balance in the second half of 2015.
The market was improving now, he said, and “tremendous opportunity” in oil remained despite recent market volatility and uncertainties. Energy demand would increase by 60 percent by 2040 and oil would remain a central energy source, he said.