Daily Management Review

How To Co-Exist With U.S. Shale Oil Is Being Pondered Upon By OPEC


05/27/2017




Since the cartel discovered it had a surprise rival emerging in a core market for its oil around five years ago, the history of the relationship between OPEC and the U.S. shale oil industry has evolved a great deal.
 
In a bid to understand whether the two industries can co-exist or are poised to embark on another major fight in the near future, OPEC is readying a trip for its top officials to Texas and U.S. shale bankers came to Vienna this week.
 
"We have to coexist," said Khalid al-Falih, Saudi Arabia's energy minister, who pushed through OPEC production cuts in December. This was a reverse of Riyadh's previous strategy which was try to kill off U.S. shale with low oil prices and pump as much as possible.
 
Keeping roughly 2 percent of global production off the market in an attempt to boost prices, OPEC and non-OPEC countries led by Russia agreed on Thursday to extend oil output curbs by nine months to March 2018.
 
But after it found ways of slashing costs when Saudi Arabia turned up the taps three years ago, OPEC now realizes supply cuts and higher prices only make it easier for the shale industry to deliver higher profit.
 
And taking advantage of new technology, low costs and steady oil prices CLc1LCOc1 to reap profits at OPEC's expense, Parsley Energy Inc, Diamondback Energy Inc and others are pumping at the fastest rate in years in the Permian Basin - the largest U.S. oilfield.
 
OPEC seeks to hinder its growth by keeping just enough supply on the market to hold prices below $60 per barrel and its latest calculus acknowledges the global clout of shale.
 
"All shale companies in the U.S. are small companies," said Noureddine Boutarfa, who represented Algeria at the meeting. "The reality is that at $50 to $60 a barrel, (the U.S. oil industry) can't break beyond 10 million barrels per day."
 
And in what would be a 1 million bpd rise, that is the level many analysts estimate U.S. oil production will reach next year. And after a two-year price war with OPEC and considering thousands of layoffs and scores of bankruptcies during 2015 and 2016, that is a staggering jump for the industry.
 
Still rising global demand cannot be met or natural declines in traditional oilfields cannot be offset, by that extra volume and this is something that the OPEC is banking on.
 
"For all OPEC members, $55 (per barrel) and a maximum of $60 is the goal at this stage," said Bijan Zanganeh, Iran's oil minister. "So is that price level not high enough to encourage too much shale? It seems it is good for both."
 
Making it a key topic during Thursday's meeting after barely mentioning it before, some OPEC members seem keen to show they have shed any prior naivete about shale.
 
"We had a discussion on (shale) and how much that has an impact," said Ecuador Oil Minister Carlos Pérez. "But we have no control over what the U.S. does and it's up to them to decide to continue or not."
 
A presentation on shale's potential last week was asked to be presented OPEC delegates to Mark Papa, chief executive of Permian oil producer Centennial Resource Development Inc. He appeared to have played his cards close to his chest.
 
"In terms of the threat, we still don't know how much (U.S. shale) will be producing in the near future," Nelson Martinez, Venezuela's oil minister said after the talk.
 
Some U.S. shale leaders hope to help OPEC understand that shale is not a flash in the pan and may also want a better insight into OPEC thinking, by the same token.
 
"OPEC looks at shale and it scoffs," said Dave Purcell of Tudor, Pickering, Holt & Co, a U.S. shale investment bank that attended the OPEC meeting for the first time. "There's a rational skepticism globally, but it misses the mark."
 
He did not believe U.S. oil production would rise by 1 million bpd next year, the UAE Energy Minister Suhail bin Mohammed al-Mazroui said, for example.
 
And happy to see an alternative were some of OPEC's customers. It is looking to the United States for greater supply, said India, the world's third-largest oil consumer, this week.
 
"The new normal has to be accepted," Dharmendra Pradhan, India's energy minister said this week ahead of the OPEC meeting.
 
To reconsider output policy, OPEC meets again in November. There are those in OPEC who think another fight is around the corner even while most in the group now appear to believe that shale has to be accommodated.
 
"If we get to a point where we feel frustrated by a deliberate action of shale producers to just sabotage the market, OPEC will sit down again and look at what process it is we need to do," said Nigerian Oil Minister Emmanuel Kachikwu.
 
(Source:www.reuters.com) 






Science & Technology

Scientists Discover Largest Ever Under Water Volcanic Eruption Near New Zealand

Bitcoin craze increased load on the power grid to the maximum

PC And Server Performance Slows Down Due To Security Patches For Chip Flaws, Says Microsoft

Cybersecurity Firm Claims Cryptocurrency Monero Might Be Getting Funneled To North Korea University

The Way We Travel Will Be Changed by The Colorless, Odorless Gas - Hydrogen

EU's Big Change In Data Protection Rules Makes Businesses To Get Ready For It

Artificial Intelligence Helps NASA Find An 8th Planet In Orbit Of A Distant Star

Australian Research Success Could Mean Shatterproof Cell Phones Could Soon Be A Realityv

Top ten hi-tech events of the year

Tesla Considering Designing And Developing AI Chips On Its Own To Support Its Auto-Pilot Project

World Politics

World & Politics

Failure Of Last Ditch Effort To Secure Funding Results In A Partial Shutdown Of US Government

About 700,000 U.S. Twitter Users Reacted To Kremlin-Linked Trolls, Says Twitter, To Inform Users Directly

2017 Was Second Warmest Year Since Records Were Kept And It Had No El Nino Effect

France and Germany want to reform the eurozone

Take and go away: new approach to refugees in Europe

Both The Korean Countries Will Come Together In Olympic Talks

Parties of Germany agreed on the migrants problem

Munich Re: Natural disasters caused record damage in 2017