Shale Seen by U.A.E. Hurt More Than OPEC in Oil’s Fall

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OPEC nations can withstand a drop in crude prices to the lowest in more than five years, while shale drillers will probably be the first to curb production amid the collapse, the United Arab Emirates’ energy minister said.

Oil slumped almost 50 percent last year, the most since the 2008 financial crisis, amid a supply surplus that the U.A.E. and Qatar estimate at 2 million barrels a day. The Organization of Petroleum Exporting Countries is battling a U.S. shale boom by resisting production cuts and signaling its readiness to let prices fall to a level that slows American output, which has surged to a three-decade high.

“Everyone needs to take measures, but those who are producing the most expensive oil -- the rationale and the rules of the market say that they should be the first to pull or reduce their production,” Suhail Al Mazrouei, the U.A.E. minister, told reporters today in Abu Dhabi. “If the price is right for them to produce, then fine, let them produce. If the price is not right, then they will reduce.”

U.S. crude slid below $45 a barrel today, falling to the lowest level since March 2009. Goldman Sachs Group Inc. and Societe Generale SA cut their price forecasts, while Venezuela called on its fellow producers in OPEC to work together to lift prices back toward $100 a barrel.

‘Not Sustainable’

Brent crude futures for February settlement fell $1.55, or 3.3 percent, to $45.88 a barrel on the ICE Futures Europe exchange at 1:14 p.m. in London. West Texas Intermediate decreased $1.28 to $44.79 a barrel in New York.

“It’s unlikely we will see a sudden rise” in prices, given excess global supply, Mazrouei said today at an Abu Dhabi conference organized by Dubai-based consultants Gulf Intelligence. “We have seen the oversupply coming primarily from shale oil, and that needed to be corrected.”

Crude prices will be dictated by the highest-cost producer, and shale wells will switch on and off according to price, he said. He expressed concerned that the price slump would deter the investment needed worldwide to ensure adequate oil output to meet future demand.

“The current prices are not sustainable,” he said. “Not for us but for the others.”

Price Volatility

Competition for market share between OPEC and North America’s shale producers, together with geopolitical risks, will probably contribute to a “period of sustained volatility” for oil prices, Christof Ruehl, global head of research at Abu Dhabi Investment Authority, the emirate’s sovereign wealth fund, said today at the same conference. Volatile prices are the main obstacle to investment in new production capacity, said Ruehl, formerly BP Plc’s chief economist.

The U.A.E., OPEC’s fifth-largest member, pumped 2.7 million barrels a day last month and has a capacity of 3 million, according to data compiled by Bloomberg. The Persian Gulf nation will stick with its plan to boost capacity to 3.5 million barrels a day in 2017, in spite of the global glut, Mazrouei said yesterday in Abu Dhabi, the U.A.E. capital.

“In this time of unstable oil prices, we are showing in Abu Dhabi and across the country that we remain dedicated to reach our long-term production goals,” he said yesterday. “Our investments remain there.”

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