Wednesday, December 16, 2015

Can OPEC Break Shale Oil?


There is nothing Saudi Arabia or OPEC can do about shale oil over the long term.

At best they can only delay the inevitable.

Millions of barrels of shale oil will be introduced into the market over the next decade.

Companies with shale exposure, over time, will take market share away from OPEC.

From some of the headlines I've read recently, you would think the U.S. shale industry has been defeated by Saudi Arabia and OPEC, and everything in the oil sector going to return to where things were before shale producers entered the market.

Not only is this a fallacy, it is the exact opposite, which is why the strategy of oversupplying the market will remain in place for now in order to keep the price of oil low, which in turn makes it more difficult to invest in new exploration and development.

The idea of market share being the battleground being fought over is a misguided one because, that would suggest shale oil can be defeated around the world. It's not going to happen. It won't even happen in the U.S., let alone the world.

more on OPEC's war on shale oil

OPEC's War on OPEC


OPEC's greatest competitor is now OPEC. 

The real reason OPEC oil production levels will remain high. 

What the market is transitioning into. 

Is a real free market oil industry emerging? 

There are a lot of variables behind the reason the price of oil has plunged, as producers ramp up production in an attempt to maintain market share.

When Saudi Arabia and OPEC decided to boost production in response to the serious threat of U.S. shale oil, that was the primary impetus behind pushing prices down, in order to put extreme pressure on the quickly-growing shale competitors before they were too big to be dealt with.

As time as passed though, and U.S. producers have been forced to lower production levels and reduce exploration and development spending, a scenario has emerged that has gravitated to OPEC itself.

With Iran about to be released from sanctions, it has aggressively and publicly stated it will take steps to gain back market share it has lost, and will do what's best for the country, which was a reference to ignoring anything Saudi Arabia had to say about it.

more on OPEC battling OPEC

Oil Price Outlook for 2016 Looks Bad

* Outlook for the price of oil in 2016 looks weak.

* Why it'll take a lot for competitors to come to a production cut agreement.

* U.S. shale will remain resilient, but offshore and Canadian sands will struggle.

* There are no visible catalysts to provide support to the price of oil.

It's humorous to see headlines in the financial media bleating out the idea that the price of oil is crashing because of the decision by OPEC to do nothing to reduce production levels.

I've been on the record for a long time saying it's not going to happen, and there were a number of others, understanding what's really happening in the oil industry, coming to the same conclusion.

Maybe some were hoping it would happen, but the disruption caused from the emergence of the U.S. shale industry has forever changed the oil market landscape, and as Saudi Arabia is finding out, it doesn't matter how much supply is brought to market, it is here to stay.

more on 2016 oil price outlook