Shale producers need to show restraint amid higher prices, UAE energy minister says

Brent crude prices have climbed 10% this year to just below $57

Suhail Al Mazrouei, UAE's minister of energy, is optimistic about a recovery in oil demand in 2021 but says it will be gradual. Victor Besa/The National

US shale producers should show restraint amid higher oil prices, according to the UAE's energy minister, who reiterated the country's commitment to the Opec+ alliance.

"The producers need to be careful not to over flood the market," Suhail Al Mazrouei told the Gulf Intelligence Global UAE Energy Forum 2021 on Wednesday.

"I think they are wise not to jump the gun and over produce during the recovery," he added.

US shale looks set for a recovery this year as oil prices have surged by 10 per cent since the beginning of the year.

Brent, the international marker was up 0.27 per cent, trading at $56.73 per barrel at 2.06pm UAE time. West Texas Intermediate, which tracks US crude grades, was up 0.39 per cent at $53.42 per barrel.

US shale producers suffered a torrid 2020 as a demand slump induced by Covid-19 led to an increase in bankruptcies.

However, the sector is likely to become profitable as prices rally at 11-month highs, the International Energy Agency's executive director Fatih Birol said on Tuesday.

Opec+, the 23-member producer alliance led by Saudi Arabia and Russia, is drawing back 7.2 million barrels per day for three-months until March.

Saudi Arabia made a surprise, unilateral decision to commit to a 1m bpd cut for February and March. The decision, which has helped support the rally in prices, is to partly compensate for the production increases from Russia and Kazakhstan. Moscow and the former Soviet state will collectively add 75,000 bpd, largely to meet winter power requirements in both countries.

Mr Al Mazrouei dismissed the idea of a lack of cohesiveness among Opec+ producers over allowing Russia and Kazakhstan to increase production.

"All of us agreed to give them a slack for those two months. And I think Saudi Arabia with generosity has put enough volumes to compensate for that," he said, adding that the producers were "all convinced, rather than pushed".

The deepened production cuts from Opec+ has continued to support prices, in spite of widespread lockdowns in several OECD countries.

A softer dollar has also helped to push crude benchmarks higher, with commodities entering a 'supercycle' amid optimism over a larger stimulus package in the world's largest economy.

"With the US dollar no longer acting as a headwind, these currencies have capitalised on gains in commodities, notably in oil prices," said Stephen Innes, chief global strategist at Axi.

He cautioned that the current levels present an "increasing risk" to the oil market due to an expected response from US shale.

Opec+ is likely to continue restraining oil supply until inoculation programmes against Covid-19 are more widespread, Bank of Singapore said in a note on Wednesday.
The bank revised its 12-month forecast for Brent to $62 per barrel, from $56 per barrel previously.

A "winter surge" in Covid-19, which has affected more than 92 million people globally, is likely to subside by spring.

With falling cases, Saudi Arabia can be expected to increase production to cap prices in order to prevent an influx of US shale into the market, the Singapore-based lender said.