OPEC Strategy Eroding US Oil Shale Production

January 14, 2015


Pressure on oil prices has continued to build after key members of the Organisation of the Petroleum Exporting Countries (Opec) indicated there would be no let up in the cartel’s strategy of allowing the cost of a barrel to plummet.

Brent crude tested new six-year lows below $46 per barrel on Tuesday after the energy minister of the United Arab Emirates (UAE), a senior delegate among the cartel’s 12 members, said there would be no change in strategy despite the continued slide in the price.

“The strategy will not change,” said Suhail bin Mohammed al-Mazrouei, speaking in Abu Dhabi. “We are telling the market and other producers that they need to be rational.”

Mr Mazrouei added that it could take years for prices to stablise, adding: “We are passing through very interesting times…it is unlikely that we will see a sudden rise [in oil prices].”

The UAE, Saudi Arabia, Kuwait and Qatar form a core of Gulf Arab oil producers who dominate Opec policy due to their overwhelming oil reserves and production capacity. Combined, these four account for almost two thirds of the cartel’s production of around 30m barrels per day (bpd) of crude.

High cost production, like “tight oil” from oil shales in North Dakota and elsewhere, will be hit hardest by the price drop. The New York Times reports that, even with a decline in that shale production, prices will stay down for the medium future, and then rise again.  We can assume OPEC may have some response to that projection.

HOUSTON — Even with oil prices continuing to plummet and oil companies decommissioning drilling rigs every day, the Energy Department on Tuesday projected that domestic crude production would continue to rise in 2015, although growth would slow.

The forecast of even more American supplies on an oversupplied global market was not unexpected, but it added to the probability that oil prices that have plummeted around 55 percent since June will not completely recover any time soon.

But the department projected a modest recovery for the Brent global oil price benchmark, now around $46 a barrel, which it said would average $58 a barrel this year but rebound to $75 in 2016. On Tuesday, both Brent and the American benchmark oil prices tumbled sharply, but later rose from their lows. The projection came hours after North Dakota regulators reported that oil companies had decommissioned eight rigs overnight, reducing the number in the state to the lowest level in over four years. North Dakota, the No. 2 state in oil production behind Texas, still has 158 rigs drilling, but only last month there were 183 rigs operating.

Nevertheless, the report issued by the department’s Energy Information Administration forecast that total American crude production that averaged 9.2 million barrels a day at the end of 2014 would average 9.3 million barrels a day in 2015.

“We don’t see a massive downturn,” said Howard K. Gruenspecht, the Energy Information Administration’s deputy administrator. Mr. Gruenspecht noted that production in several areas of the country was “significantly locked in” and that output in the federal waters of the Gulf of Mexico would actually be increasing.

The decline in drilling, Mr. Gruenspecht said, will come in the shale fields of the lower 48 states, which have represented the heart of the American boom that has increased production by more than a million barrels a day in each of the last three years. Shale oil production will continue to increase through the first half of the year, but then decline in the second half, before picking up again in 2016 as prices rise again.

Oil company executives responded cautiously to the report.

“There is a complexity to not knowing how long this will last and where the bottom will be,” said Danny Jimenez, chief executive of Craig Energy, an oil service company that operates in North Dakota and other western states. “Supply has a number of different question marks; obviously one is the rig count and the reduction of the rig count here in the U.S. and what that is going to do to U.S. production. We have to be as cautious as possible and conservative as possible given the circumstances.”




20 Responses to “OPEC Strategy Eroding US Oil Shale Production”

  1. redskylite Says:

    Now even CNN are publishing it – so WHY an earth are you appointing deniers to oversee NASA and NOAA ? – our two big (if not the biggest) hopes at tracking the awful effects of what we are doing to our heritage:

    “But it may — just may — be possible to keep global warming from bringing about the destruction of civilization. To have a chance, we must do everything possible to ‘keep climate close to the Holocene range’ — which means, mobilize the whole world to replace dirty energy with clean as soon as possible.”


        • jimbills Says:

          I saw this today, too:

          It’s a ridiculous article. There’s nothing ‘epic’ presented in it except perhaps for antagonizing the Russians further. There is this quote in it from Cruz:

          “our mindset should be focused on NASA’s primary mission: exploring space and developing the wealth of new technologies that stem from its exploration”

          Which might indeed be code for slashing NASA missions that don’t bring in the dolla-bills, y’all. His focus seems to be on bringing wealth to the Houston area – typical Congress pork barrel stuff – while throwing in a heavy dose of nationalism and growthism.

          • jimbills Says:

            I left this one out from Cruz, which is significantly clearer on what he intends to do:

            “We must refocus our investment on the hard sciences, on getting men and women into space, on exploring low-Earth orbit and beyond, and not on political distractions that are extraneous to NASA’s mandate,” Cruz continued. “I am excited to raise these issues in our subcommittee and look forward to producing legislation that confirms our shared commitment to this vital mission.”

      • neilrieck Says:

        I am reminded of a quote by Winston Churchill: “You can always count on Americans to do the right thing – after they’ve tried everything else.”

        Being the most powerful economy on planet Earth might mean that American intransigence on this topic will reserve a special place for America in the history books as the single largest force to deliver “human culture” closest to the brink. We all know that humans will never become extinct but “human culture” will be badly damaged if/when a billion people die of disease related starvation.

    • jimbills Says:

      “WHY an earth are you appointing deniers to oversee NASA and NOAA ?”

      If that’s a serious, instead of rhetorical, question, the majority party (Republican or Democrat) in that house of Congress (Senate or House) gets to control the agenda not just on the floor, but in the individual committees as well. The Republicans just took the majority share in the Senate, so the agenda gets set in each committee by a Republican picked by the Republican party leadership.

      “We” don’t have any say in it other than being able to vote in our individual districts.

      • redskylite Says:

        It was rhetorical, I wasn’t holding the Greenman or the regular readers, or the country as a whole responsible. There are the same voices of doubt and denial in most if not all countries, and I am very grateful to NASA and NOAA for the good work that they have already undertaken. Just frustrated at the latest changes, and uncomfortably hot down in the Southern Hemisphere, wishing I had A/C.

  2. MorinMoss Says:

    I don’t get what’s the upside for OPEC with this strategy. I know that the tumble in oil price hurts the Russians, shale, tar sands and all the “difficult” oil production.

    But it means far less money for the Arabian Peninsula and oil is their only real product and by not cutting production, it means they’ll deplete more quickly and get less money for their trouble.

    • jimbills Says:

      Honestly, Cy made this comment a while back, that it’s really just conjecture on our part as to why they’re doing it. Saudi Arabia is notoriously secretive, and there are a lot of other interests that we peons just aren’t supposed to understand. One can make a best guess, but it’s still a guess.

      The best obvious reason to me is that the Saudis are protecting their market share by shaking up hydrofracturing and tars sands in North America. It’s a longer term strategy in their eyes. Everyone expects prices to rise again in a year or so, including them, but they’re hoping a lot of shale oil will be taken offline by then. Still, the Saudis probably aren’t the primary reason why oil prices have dropped so low, although their actions have contributed to it.

      BTW, it’s NOT in everyone in OPEC’s best interest. Saudi Arabia dominates OPEC, though, and was able to push it past them despite many OPEC countries being deeply against maintaining production levels:

  3. OPEC realizes that their oil has a good chance of being locked in the ground by the climate change movement. They figure that selling it at any price is better than not selling it at all.

  4. All major commodities are down, not just oil, copper, iron ore, wheat, etc.

  5. redskylite Says:

    As someone who spent many years in the empty quarter oilfields of the middle east and brought up a family in the U.A.E, I hope I can clear some of the misconceptions I’ve seen in this particular column.

    “But it means far less money for the Arabian Peninsula and oil is their only real product and by not cutting production, it means they’ll deplete more quickly and get less money for their trouble. “

    “OPEC realizes that their oil has a good chance of being locked in the ground by the climate change movement”

    The U.A.E has a thriving business with Masdar a local company who’s vision is thus ”Making profitable and sound investments in renewable energy and sustainable technology.” The company is involved with many large worldwide renewable projects, and has partnerships with such companies as Total of France. The Emirate of Dubai does not even produce oil (that is produced in the neighbouring Emirate of Abu Dhabi), it’s main capital earner is tourism, it also has several flourishing Free Trade Zones, where is encourages non oil business as a business gateway to the middle east.

    Saudi Arabia contains many other minerals including including bauxite, copper, gold, iron, lead, silver and tin as well as non-metallic minerals.

    They do not have democracy or green movements as we do in the west and certainly are not afraid of the climate change movement.

    Abu Dhabi relied mainly on fishing and dates, before the oil men came, 60 % of their new found riches was shared by the U.S, Britain, Dutch, France and Portugal, the foreign interests have now been taken over by China.

    Many of the young men of Saudi and the U.A.E were educated in U.S Universities and understand the need to put the brakes on carbon pollution better than most.

    Can you not believe that these countries are getting over oil and preparing for the future ?

  6. […] evidence that we are at a critical moment for fossil fuels broadly, not just the standard roller coaster […]

  7. […] ocean deep water, and Alberta Tar Sands, depends on a continued high price for oil – but markets are not cooperating. And importantly, don’t believe that because the Administration ok’d this particular […]

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