Rising rivalry between OPEC and US shale industry

Published: 28 Nov 2017 By Matt Cook

OPEC is facing a certain struggle to maintain its control on the world markets due to the booming shale market in the USA. Oil industry experts are suggesting that the shale revolution in the US is potentially the largest oil and gas boom in history.

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Experts are suggesting the shale industry could transform the US into a global player within the market and this ‘shift of power’ could reduce the historical dominance of Saudi Arabia and OPEC. The power change may encourage OPEC to collaborate more with Russia in an attempt to maintain more control over the global markets.

Global stockpiles are depleting and oil prices are nearing a two year high. OPEC is now in conversations with Russia to discuss extending production cuts. However, energy experts are uncertain how this discussion will influence US shale production next year.

Oil analysts believe the collaboration with Russia is essential for OPEC to maintain it’s power in the market.


Consuming Surplus Oil Supplies


According to OPEC data, excess oil supplies have reduced by over 180 million barrels which have caused a revival of oil prices from $45 in the summer to a two year high of over $64 in November. Whilst critics believe OPEC has lost its dominant market force, the 14 members still pump close to 40% of the world’s oil supply. The Minister of Saudi Arabia has successfully developed agreements within OPEC and non-OPEC regions (such as Russia) to maintain production levels.


Supporters of OPEC are suggesting that Shale drillers are potentially losing momentum and that many companies have reached maximum production levels and as a result investors are requesting profit return, rather than re-investment in more drilling activity.
 
A year of rapid development in shale activity appears to have somewhat slowed down and output productions have been slightly altered. Recent estimates suggest shale production in 2018 could be anywhere from half a million to nearly 2 million barrels a day. There is a range of opinions on the long-term outlook of the shale industry, which suggest a slightly uncertain market that may play slightly in favor of OPEC. 


Forecasts from the International Energy Agency suggests that increases in US shale production will be enough to cancel any developments made between OPEC and Russia, leaving the surplus relatively alike to current levels.


A collaboration between Saudi Arabia and Russia has enabled an agreement in the battle for market share. However, this could alter again if crude exports increase dramatically within the US. 


Shale producers within the US are adding more drilling rigs in response to oil prices and improved confidence in the outlook for 2018. Shale companies are adding additional rigs in a response to increases in spot prices and an improved outlook, which could make shale production more profitable next year.

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