Opec bat­tle with US shale nears day of reck­on­ing

For oil car­tel’s mem­bers, stakes could not be higher

The Star Malaysia - StarBiz - - Foreign News -

LON­DON: The clash be­tween Opec and Amer­ica’s oil in­dus­try is reach­ing a day of reck­on­ing.

The US shale rev­o­lu­tion is on course to be the great­est oil and gas boom in his­tory, turn­ing a na­tion once at the mercy of for­eign im­ports into a global player.

That seis­mic shift shat­tered the dom­i­nance of Saudi Ara­bia and the Opec car­tel, forc­ing them into an al­liance with long-time ri­val Rus­sia to keep a grip on world mar­kets.

So far, it’s worked – global oil stock­piles are drain­ing and prices are near two-year highs.

But as the Or­gan­i­sa­tion of Pe­tro­leum Ex­port­ing Coun­tries and Rus­sia pre­pare to meet in Vi­enna this week to ex­tend pro­duc­tion cuts, min­is­ters have lit­tle idea how US shale pro­duc­tion will re­spond in 2018.

“The pro­duc­tion cuts are ef­fec­tive – it was ab­so­lutely the right de­ci­sion, and the fact of strik­ing a deal with Rus­sia was cru­cial,” said Paolo Sca­roni, vice-chair­man of NM Roth­schild & Sons and for­mer chief ex­ec­u­tive of­fi­cer of Ital­ian oil gi­ant Eni SpA.

None­the­less, “Opec has not the same power. The US be­com­ing the big­gest pro­ducer of oil in the world is a dra­matic change.”

For Opec mem­bers, the stakes couldn’t be higher.

Saudi Ara­bia’s Crown Prince Mo­hammed Bin Sal­man is em­bark­ing on a rad­i­cal eco­nomic trans­for­ma­tion of the king­dom, in­clud­ing a par­tial sale of its state oil com­pany that could be the largest pub­lic of­fer­ing in his­tory.

Venezuela, reel­ing from years of re­ces­sion and a crush­ing debt bur­den, is on the brink of po­lit­i­cal im­plo­sion.

The pro­duc­ers’ ef­forts to clear the oil sur­plus are start­ing to pay off. They’ve drained ex­cess in­ven­to­ries in de­vel­oped na­tions this year by 183 mil­lion bar­rels, or more than half of the glut, which now stands at about 154 mil­lion bar­rels, ac­cord­ing to Opec data.

That has re­vived Lon­don-traded crude fu­tures, which sank be­low US$45 a bar­rel this sum­mer, to a two-year high of US$64.65 on Nov 7.

That suc­cess goes some way to coun­ter­ing ac­cu­sa­tions that Opec had lapsed from the dom­i­nant mar­ket force

1980s into ir­rel­e­vance.

Al­though its 14 mem­bers still pump 40% of the world’s oil, their share has dwin­dled from the days when Opec held the global econ­omy in thrall.

“Peo­ple may have thought that Opec was dead, but Saudi Min­is­ter Khalid Al-Falih has suc­ceeded in build­ing agree­ments and al­liances within Opec and non-Opec, such as Rus­sia, to re­strain pro­duc­tion,” said Luis Giusti, an ad­viser at the Cen­ter for Strate­gic and In­ter­na­tional Stud­ies and for­mer CEO of state-run Petroleos de Venezuela SA.

There are even signs that Opec’s op­po­nents, the dozens of drillers tap­ping shale-oil de­posits in Texas and North Dakota, are los­ing mo­men­tum. Com­pa­nies may have al­ready squeezed costs and max­imised pro­duc­tiv­ity of the 1970s and as much as pos­si­ble, and their in­vestors are fi­nally in­sist­ing prof­its are re­turned to them rather than re-in­vested in more drilling.

Mark Papa, CEO of Cen­ten­nial Re­source De­vel­op­ment Inc. and con­sid­ered one of the in­dus­try’s founders, said in Septem­ber that shale “is not nearly the Big Bad Wolf that every­body thinks.”

A year-long ramp-up in drilling by Amer­i­can op­er­a­tors ap­peared to hit a plateau in July, data from Baker Hughes Inc shows, and com­pa­nies such as Pi­o­neer Nat­u­ral Re­sources Co have low­ered their out­put tar­gets.

The out­look for shale is so clouded that when Opec of­fi­cials in­vited in­dus­try ex­perts to brief them on the topic last week, they were dis­turbed by the di­ver­sity of opin­ions. — Bloomberg

Pro­duc­tion cuts: A worker checks a valve of an oil pipe at Nasiriya oil­field in Nasiriya prov­ince, south­east of Baghdad, Iraq. Opec’s pro­duc­tion cut has worked - global oil stock­piles are drain­ing and prices are near two-year highs. — Reuters

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