The Opec group is to forge a permanent alliance with a Russia-led bloc of producers by the end of the year, aiming to regain control of the world crude market with a super-combination of unprecedented scale and reach.
Suhail Al-Mazroui, Opec’s president, said the two groups were working on a 'framework partnership' that would tie them together in perpetuity after their current deal to cap production jointly expires later this year. 'We have built up enormous trust,' he told the International Petroleum Week forum in London, an annual gathering of the world’s oil and gas elites.
Mazroui, who doubles as Emirates energy minister, said the broad 'Ropec' alliance has exceeded the agreed cuts of 1.8 million barrels a day (mbpd) with a compliance rate of 107 per cent. This spiked to 133 per cent in January as Saudi Arabia throttled back production in a bid to clear the global glut of crude, hoping to stabilise prices before the kingdom floats a share of the state oil giant Aramco.
The new super-group would once have been a radical development for the oil industry. It is an awkward and belated response to the threat of America’s 'short-cycle' shale frackers, who can respond with lightning speed and are preventing the normal cycle of full recovery from taking hold.
The fracking industry seized on the Ropec cuts to ramp up US output by over 250,000 bpd a month over the winter, with a further 1.3 mbpd expected this year. The International Energy Agency says exploding US production in 2018 may match the entire growth in oil demand from China and the rest of the world, potentially causing the latest rally to short-circuit before prices durably surpass $70.
It expects the US to leapfrog past Saudi Arabia and Russia to become the world’s biggest producer this year, eyeing a record 11 mbpd.
Dan Brouillette, the US deputy energy secretary, told the IP forum that the nation was on the brink of world 'energy dominance' as it becomes a net exporter of fossil fuels, transforming the strategic balance of power. He predicted a 'phenomenal' rise in US oil output this year and next. 'I don’t see it as a blip,' he told Bloomberg.