Black gold, Texas tea, Bubblin’ crude. Whatever you call oil, the world is awash in it right now, and this is putting pressure on two key aspects: crude prices and the Organization of the Petroleum Exporting Countries (OPEC). The primary factor that affects both elements is the shale-oil revolution persisting in the U.S., and there are no signs of it slowing down.
For close to a year, the oil cartel has limited production among its members to 1.8 million barrels per day (bpd). Because it had little impact on crude prices, OPEC agreed to extend the arrangement until March 2018. Thus far, OPEC nations have reached 97% compliance, and Libya and Nigeria have been exempt from the output freeze as they rejuvenate their industries and contribute to immense supplies.
Despite OPEC’s production cuts, it isn’t enough to slash the supply glut in international oil markets.
The main reason is that U.S. oil producers are ramping up output. With crude prices hovering around the crucial $50 a barrel threshold, U.S. firms are taking advantage of the higher prices, and they can continue to maintain their operations even if futures plunged to $35 a barrel.
According to the Energy Information Administration (EIA), total crude-oil yields rose 79,000 bpd to a total of 9.502 million bpd last week. This is the highest weekly output figure in more than two years. Over the past 12 months, U.S. production has spiked around 10%, and experts project “Saudi America” will top 10 million bpd as early as next year.
At least for the short-term, it’s going to get a lot worse for OPEC. With U.S. consumer demand shrinking – children are heading back to school, summer road trips are coming to an end, and the peak of the summer driving season will soon fade – supplies will bolster for the remainder of 2017.
It is inevitable that the U.S. will surpass Saudi Arabia and become the No. 2 oil producer in the world. This was unimaginable just five years ago, but Olav Dirkmaat of the Mises Institute made one major prediction earlier this summer:
In the end, shale oil production is radically changing the oil industry. Curiously, in ten years from now, it will be both the US and Russia that will be the major shale oil producing countries. We can only guess how that will play out in the (geo)political arena.
In other words, the U.S. will make OPEC irrelevant, and the world will no longer be at the mercy of these 15 nations. As Liberty Nation reported in June, the only obstacles the U.S. will need to overcome are manpower and infrastructure, but many industry experts argue that it wouldn’t be hard to achieve.
According to Neil Atkinson, head of the International Energy Agency (IEA)’s oil markets and industry division, who spoke with Bloomberg on Wednesday, the only game plan that OPEC will need to adopt is “to dig in for the long haul” and hope for the best. How long could this last? Sarah Emerson, energy principal at ESAI in New York, warned that if OPEC wants to keep crude prices in the $50-to-$60 range, then it would need to wait several more years.
The key question is: can Saudi Arabia wait that long? It is the de facto leader of OPEC, and it has been adamant in curtailing production and keeping a lid on supplies. At the same time, the Saudi leadership would be hesitant about the U.S. overtaking it in the global oil market. Does it have the temerity, discipline, and confidence to wait it out?
The answer to that question may lie in this sublime assessment by Jamie Horgan of The American Interest:
OPEC and its ilk are still struggling to balance the books in this new era of cheap oil, and what meager price rebounds this coalition has so far produced are being undermined from both within (as we’ve seen lately with Saudi, Nigerian, and Libyan output increases) and without (American oil production is up 653,000 bpd in 2017). In today’s market, there’s still precious little to be excited about from a petrostate perspective, and that may be all you need to know to assess these production cuts.
In the meantime, the U.S. can gloat for the next several years as its fracking endeavors continue to change the oil market landscape and lead the shale revolution.
When former Republican National Committee (RNC) Chairman and Lieutenant Governor Michael Steele (R-MD) said the emphatic words “drill, baby, drill!” in 2008, who knew that it would lead the U.S. to become an oil superpower? After years of administrations demanding the U.S. become energy independent, the Land of the Free has finally broken free from the Middle East shackles.