By Isaac Cohen*
With the reactivation of demand mainly among the advanced economies and China, last week, oil prices crossed $70 per barrel, the highest price in six years. However, the ascent in prices was interrupted by the revelation, in The Wall Street Journal (07/07/21), that a major difference has emerged among two of the main members of the Organization of Petroleum Exporting Countries (OPEC).
There is agreement between members and non- members of the organization about removing the production cuts approved during the pandemic, of almost 10 million barrels per day, including 4 million already restored. But the delegation from the United Arab Emirates conditioned its approval to obtaining a larger production quota, to increase its market share, which is opposed by Saudi Arabia, OPEC’s major producer.
The United States is the non-member which has the capacity to break the logjam, if prices become attractive enough to persuade so-called “frackers,” producers of shale oil, to increase the 2 million barrels per day cut during the pandemic. For instance, last week, there were 378 active rigs drilling oil in the United States, from 683 in 2019. At least 575 active rigs are required to return to pre-pandemic production levels. However, this time major US “frackers” are not reinvesting their increased cash flow generated by higher prices. Instead, some are reducing debt, or paying dividends.
*International analyst and consultant, former Director ECLAC Washington. Commentator on economic and financial issues for CNN en Español TV and radio, UNIVISION, TELEMUNDO and other media.