| NEW YORK
NEW YORK Oct 4 OPEC producers have their sights
set on a sustained oil price of $50-$60 per barrel, a modest
ambition for the first cut in supply by the oil exporting group
in eight years, says one of the industry's top forecasters.
Benchmark U.S. oil prices have risen around $4, or
around nine percent, to over $48 per barrel since the
Organization of the Petroleum Exporting Countries (OPEC) agreed
last week to shave output.
"You don't manage the market unless you have a price in
mind," said Gary Ross, founder and executive chairman at the New
York-based consultancy PIRA.
"They are being cautious, they want to see what will happen
with shale. But OPEC's price aspirations only go up over time.
They don't go down."
The deal marks the return to supply caps for the producer
group after a brutal two-year free-for-all when OPEC members
ditched output targets and pumped more than the market needed in
a price war that bloodied U.S. shale producers.
U.S. oil output fell to around 8.7 million barrels per day
in July, the lowest since May 2014 and down over 730,000 bpd on
the year, mostly as shale producers hit by low oil prices cut
Ross challenged the assumption that a higher price could be
self-defeating for OPEC because it will encourage shale
producers to boost output.
"We're not necessarily about to be overwhelmed by shale
oil," he said. "The timing of this is quite deliberate, OPEC is
doing this heading into winter and at a time when supply from
non-OPEC producers is down."
Peak northern hemisphere energy demand during the cold
season provides OPEC with a window to reach its price
aspirations, Ross said. Shale producers will need four to six
months to bring new production online, and that may take longer
in areas where cold weather prevents work.
After letting thousands of employees go over the past two
years, it will take time for shale producers to build up
operations and costs will rise quickly, he added.
The impact of fast-rising costs on shale producers was
likely another factor in OPEC's thinking, Ross said. OPEC
producers have less variable costs and so will benefit more from
the uplift in oil prices than shale producers, he said.
While the price rout hurt OPEC's competitors, the group's
oil ministers were under pressure from their own central bankers
and finance ministers to do something to reverse the impact of
low prices on their own revenues, Ross said.
Many have had to cut budgets and the generous benefits as
they adjusted to the longest and deepest oil price rout since
The $4 rise in prices is already worth over $100 million a
day in additional revenue for OPEC producers pumping around 33
million bpd of crude.
OPEC kingpin Saudi Arabia was not just dressing up a
seasonal variation in output as a supply cut, Ross said. The
kingdom typically reduces output after summer, when it no longer
needs to burn crude for power generation to feed demand for air
"There is a lot more to it than that," he said. "The policy
to push for market share is over. It's a matter now of going
back to managing the market."
(Editing by Marguerita Choy)