OPEC losing shale oil war?
The quest by the Organisation of Petroleum Exporting Countries (OPEC) to surmount the threat of shale oil may be far from reality going by the recent developments in the global oil market.
Indeed, the price crash scenario and the steady output strategy may have negative impact on the development of the new energy source, but indications emerged that some promoters of shale oil have adopted a win-it -all technique for survival.
Oil price is currently around $65.37 per barrel, about 45 per cent below peak prices from last June.
Historically, when oil prices fall, OPEC nations cut back production, to help support prices, but they havenít done that this time, with aggressive levels of production largely viewed as an effort to force some U.S. drillers out of the market and make sure OPEC retains its global market share.
Countries, such as Nigeria, Algeria and Iran among others have clamoured for OPEC’s intervention through output cut, but other members felt relatively comfortable with their market strategy. Meanwhile, the cartel is already divided ahead of its next meeting slated for June 5, 2015.
Iran’s oil minister, Bijan Zanganeh, had stated that OPEC’s strategy of holding output steady is not working, urging the group to discuss production levels before its next meeting in June.
However, OPEC in its latest monthly report said the demand for its oil will rise during 2015 because the cartel is winning its price war against US shale producers by driving them out of business.
Higher global refinery runs, driven by increased (summer) seasonal demand, along with the improvement in refinery margins, are likely to increase demand for crude oil over the coming months,î it stated.
OPEC forecasts demand at an average of 29.27 million barrels per day in the first quarter 2015, a rise of 80,000 bpd from its previous prediction made in its March report. At the same time, it said, the cartelís total output will increase by only 680,000 barrels per day, less than the previous expectation of 850,000 barrels per day, due to lower US and other non-OPEC production.
Chief Executive Officer of Texas-based driller Magnum Hunter Resources (MHR), Gary Evans, said: ìWeíre wounded but weíre not dead, for sure. If their goal was to crush the US oil and gas industry, that isnít going to happen. We are a very resilient industry.î
An analist, Kent Moorsin his book, “The solid facade of OPEC is crumbling”, believes that OPEC is losing its grip on world energy domination, going by the prevailing market trend.
U.S. imports of oil and petroleum products from OPEC have fallen to a 28-year low, according to data from the Energy Information Administration. It added that U.S. is pumping more of its own oil, and relying less on OPEC imports.
Moorsin said: “Why I think OPEC is losing the oil war is because OPEC’s grasp on oil control loosens, while the U.S.’s energy dominance strengthens.
“Traditionally, OPEC has served as the “global balancer” increasing or cutting oil exports to maintain pricing ranges. This time, however, it wants those cuts to come from elsewhere. OPEC still controls 40 per cent of the world’s production.