Spotlight: OPEC's output cut can hardly change the sluggish market

An output cut by the Organization of the Petroleum Exporting Countries (OPEC) will help adjust relations between supply and demand and shore up oil prices in the short term, it can hardly change the sluggish crude oil market, observers noted.

The 12-nation bloc agreed in Vienna on Wednesday to lower its crude oil output by 1.2 million barrels per day to 32.5 million barrels per day. The cut, the first in eight years and would be effective from Jan. 1 for six months, is a watershed in OPEC's market policies since 2014.

Analysts interpret the cut as the cartel's admittance of the failure of its two-year low-price and high-output policy, designed to deprive the U.S. shale oil of its market shares.

In the fourth quarter of this year, the global crude oil market has witnessed a daily oversupply of 1 million barrels, but the shale oil has not kissed the dust yet.

Consequently, the plummeting oil prices had dragged the Middle East oil-exporting countries into a fiscal crisis. The OPEC countries recorded a total sales revenue of 920 billion U.S. dollars in 2012, but would only pocket around 341 billion this year.

All this forced OPEC to resort to the new strategy of cutting production.

Saudi Arabia, OPEC's largest producer, has agreed to bear the lion's share of the cut, but most member countries, including Iraq, which had initially refused to freeze its output, will limit their production.

The International Energy Agency predicted that if the reduction agreement is implemented, the oversupplied market will become one where demand exceeds supply by 2017.

But there's low possibility that the global oil market would thus be much improved as the slowdown in the world economy depresses oil demand and shale oil production is thriving thanks to new technology.

Currently, with the production cost of North American shale oil down to less than 50 dollars per barrel, shale oil production can still gain benefits amid a sluggish market.

In the past two years, despite low oil prices that led to a decrease in shale oil production, shale oil shows a better-than-expected flexible space -- it can quickly adjust its output according to the market.

Previously, a small rebound of international oil prices has increased shale oil drilling rigs. The anticipated rebound of oil prices after the OPEC cut announcement is expected to push up shale oil production.

John Hall Fei, chairman of Alfa Energy, said the reduction agreement could "save OPEC," but would bring the shale oil back, noting U.S. shale oil companies were happy with the announcement and would increase the rigs soon.

In fact, it is very possible that the rapid recovery in shale oil production will squeeze the market of OPEC members.

Besides, U.S. President-elect Donald Trump has promised to eliminate pumping restrictions, support oil and gas pipeline construction and open more federal lands and offshore areas for exploration, including Alaska.

In the past 10 years, OPEC has seen a shrink in its market shares with a weakening pricing power in the global crude oil market. It could register further loss in the following race with the shale oil. Endi