Moneycontrol Pro Panorama | Market share battle drives oil prices lower

Meanwhile, scores of wildfires have swept across Canada since the start of May, forcing thousands of evacuations and disrupting crude oil production in the country.

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According to market reports, oil prices are expected to come under pressure. Despite clear signs of a slowdown in the global economy, the oil cartel OPEC+ appears determined to increase supplies.

OPEC+ has been raising production citing rising demand, even though the global economy is clearly experiencing a growth slowdown. In the United States, oil inventories have also risen despite President Donald Trump's aim to project a strong economic outlook for the country.

The primary motivation behind OPEC+ members' production increases is to regain their market share in the oil industry. Over the past two decades, the original oil cartel, OPEC, has seen its market share decrease from 50 percent to just 25 percent today.

Shale oil has significantly contributed to the increase in the US market share, which rose to 20 percent from 14 percent over recent years. Other non-OPEC players have also experienced noticeable growth during this period. While considering OPEC+ as a cartel, their market share remains at 48 percent, although it has been declining due to the rise of shale oil production.

The $60 per barrel price is crucial because it represents the breakeven cost for drilling new wells for shale oil producers.

Over the years, technological advancements have reduced the operating costs associated with producing shale oil. The cost to operate a shale oil well ranges from $26-45 per barrel, marking a nearly 40 percent decrease compared to a decade ago. However, reports indicate that to drill new wells profitably, producers need prices starting at $61 per barrel for West Texas Intermediate and reaching $70 for the Permian Basin.

OPEC+ aims to keep oil prices low and prevent additional supply from the US from entering the market. Oil prices are trading at less than half of their peak in March 2020 when the price graph reached $130 per barrel. Prices are hovering around a critical structural level of $60.

Reports indicate that OPEC members are considering a third consecutive increase in oil production for July, which will be finalised in their meeting on June 1. This increase could amount to 411,000 barrels per day for July.

In addition to the potential production hike, another factor that could keep oil prices down is the UK's urging Group of Seven (G7) allies to lower their price cap on Russian oil. This move aims to exert more pressure on President Vladimir Putin to end the conflict in Ukraine.

With no signs of demand increasing in China, supply-side pressures will determine the future trend of oil prices. Needless to add, for oil importers such as India, any move to lower oil prices is welcome.

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