OPEC’s battle with the United States over oil supremacy is approaching doomsday



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The confrontation between OPEC and the US oil industry is coming to a day.

The US slate revolution is on track to be the largest oil and gas boom in history, turning a nation at the mercy of foreign imports into a global player. That seismic change broke the dominance of Saudi Arabia and the OPEC cartel, forcing them to an alliance with their Russian rival for a long time to maintain control of world markets.

So far, it worked: global oil reserves are draining and prices are near two-year highs. But as the Organization of Petroleum Exporting Countries and Russia prepare to meet in Vienna this week to expand production cuts, ministers have little idea how the United States' shale production will respond in 2018.

"The cuts production are effective: it was absolutely the right decision and the fact of reaching an agreement with Russia was crucial, "said Paolo Scaroni, vice president of NM Rothschild & Sons and former CEO of the Italian oil giant Eni SpA. "OPEC does not have the same power, the fact that the United States has become the largest producer of oil in the world is a dramatic change."

For the members of OPEC, what is at stake could not be greater. The Crown Prince of Saudi Arabia, Mohammed Bin Salman, is embarking on a radical economic transformation of the kingdom, which includes a partial sale of his state oil company that could be the largest public offering in history. Venezuela, staggering after years of recession and an overwhelming debt burden, is on the verge of political implosion.

Surplus erosion

Efforts by producers to eliminate surplus oil are beginning to bear fruit. Excess inventories in the developed nations this year have been depleted by 183 million barrels, or more than half the excess, which now stands at around 154 million barrels, according to OPEC data. That has revived the crude futures traded in London, which fell below $ 45 a barrel this summer, to a two-year high of $ 64.65 on November 7.

That success helps counteract the allegations that OPEC had lapsed from the dominant market force of the 1970s and 1980s into irrelevance. Although its 14 members still extract 40 percent of the world's oil, its share has declined since the days when OPEC devastated the world economy.

"People thought that OPEC was dead, but Saudi Minister Khalid Al-Falih managed to establish agreements and alliances within OPEC and non-OPEC, like Russia, to restrict production," said Luis Giusti, the Center's advisor. of Strategic and International Studies and former General Director of the state company Petróleos de Venezuela SA. [19659008] Price Paradox

There are even indications that opponents of OPEC, the dozens of drillers who exploit shale oil fields in Texas and North Dakota, are losing momentum. Companies may already have reduced costs and maximized productivity as much as possible, and their investors finally insist that their profits be returned to them instead of reinvesting in more drilling.

Mark Papa, CEO of Centennial Resource Development Inc. and considered one of the founders of the industry, said in September that the shale "is not the Big Bad Wolf that everyone thinks".

A one-year increase in drilling by US operators appeared to reach a plateau in July, data from Baker Hughes Inc. shows, and companies like Pioneer Natural Resources Co. have reduced their production targets.

The prospects for the blackboard are so obscure that when OPEC officials invited industry experts to to inform them about the issue last week, they were disturbed by the diversity of opinions. Veteran oil trader Andy Hall, whose decision to close his main hedge fund this year was partly due to the unpredictability of shale, told the organization that growth estimates for 2018 range from 500,000 barrels per day to 1.7 millions per day.

However, the basic paradox facing OPEC is that the more it manages to increase prices, the more it stimulates shale explorers and other competitors, said Mike Wittner, head of oil market research at Societe Generale SA in New York. York

The increases in US oil production next year will be large enough to cancel much of the sacrifices made by OPEC and Russia, leaving the surplus more or less intact, the forecasts of the International Energy Agency show . The recent spike in prices could energize the slate even more.

Instead of being able to declare victory next year and restore the production they have stopped, OPEC could be caught in an open fight, Wittner said.

Catch-22

"Now that they are in it, I do not see how they come out of it," Wittner said. "They need to continue supply management in the foreseeable future."

The need to cooperate indefinitely could strain the partnership between Saudi Arabia and Russia.

While the Saudi-Russian alliance has allowed them to call a "truce in the battle for market share," they may end up fighting over customers again when they face a relentless tide of crude exports from the United States, "said Ed Morse, head of commodities research at Citigroup Inc. in New York.

With US crude exports close to zero three years ago to exceed the combined shipments of the smaller members of OPEC, it seems every It's more as if the confrontation between the cartel and what used to be its biggest customer "has an end," Morse said.

"And the end of the game is that there's a lot of shale in the world."

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