OPEC has asked a favor of other major producers: Please stop pumping so much and help us balance the market.
The unusual plea was issued Thursday in the cartel’s closely-watched monthly report, which found that global markets are still suffering from too much supply.
The report said that balancing the market would “require the collective efforts of all oil producers” and should be done “not only for the benefit of the individual countries, but also for the general prosperity of the world economy.”
OPEC said that one producer in particular is to blame: The U.S., where shale producers have continued to ramp up their drilling despite lower crude prices.
The increased production has undermined OPEC’s efforts to keep prices between $50 and $60 per barrel.
OPEC and allied producers agreed in November to slash production, a move designed to rid global markets of excess supply. For a while, the strategy appeared to be working, with prices drifting north of $54 earlier this year.
Now, the magic appears to be wearing off.
The cartel has responded to the sharp decline in prices by suggesting that the agreement could be extended far beyond its original mid-year deadline.
But that won’t help OPEC solve its American problem. The U.S. did not join its agreement, and the number of rigs in operation there has doubled over the past year.
“I think [OPEC] are now acutely aware that they don’t have the kind of influence they used to have 10 years ago, and that shale is now the swing producer in the market,” Tom Pugh, commodities economist at Capital Economics, said last week.
The cartel has in the past fought fiercely for its market share. Starting in 2014, it pumped relentlessly in order to squeeze higher cost American producers.
The strategy pushed prices well below $30 per barrel and forced many U.S. producers to scale back in 2015 and 2016.