The oil market hasn’t been so hot lately, with the cost for a barrel of WTI crude declining for a fourth straight week, hitting a 7-month low last week.
Oil prices haven’t been this low since OPEC’s production cut deal… so you would think that producers would be cutting rigs, lowering output.
Well, that’s true for OPEC countries, but not for the U.S.
The U.S. actually increased rig counts last week, to 747 active rigs, while upping production to 9.33 million barrels of oil a day.
We’ve said it time and again, certain U.S. shale producers can still make a profit when crude prices are trading between $40-50 per barrel.
OPEC? Not so much. It’s not that they can’t pull it out of the ground cheaper, they can. It’s that it’s their only source of revenue and without generous payouts to their citizens they face revolution.
They just can’t keep up anymore.
And there’s a good chance that they know it too, which is why we may see OPEC try to take control of another vital fuel: natural gas.
Natural gas has emerged as the best bridge between renewables and fossil fuels.
The world is demanding more of it, with consumption reaching 203 trillion cubic feet per year by 2040.
Saudi Arabia has the sixth biggest natural gas reserves in the world. However, the problem is that Saudi Arabia does not currently import or export natural gas, and therefore has no structures in place to start supplying it.
That may very well change in the future as Saudi Aramco shifts its focus and kick-starts more natural gas/LNG projects.
One thing we do know is that for OPEC’s natural gas ambitions to work, it’ll need to get Russia on board. After all, Russia is the world’s largest exporter of natural gas, and the second largest producer (behind the United States, of course).
And even though Russia is obviously not a member of OPEC, the most recent cooperation to cut production might be enough to start a dialogue between the two.
To read more about Russia and Saudi Arabia’s possible move into natural gas, click here.