OPEC KO’d by the Three Rs

[Valin]

National Review:

American oil and natural-gas production have shot ahead in the last decade.

Robert Bryce

Nov. 26 2014

 

Tomorrow in Vienna, the members of the Organization of Petroleum Exporting Countries will meet once again to jawbone about oil prices.

 

But here’s the reality: OPEC is no longer a price maker, it’s a price taker. The price of oil is no longer being set by the cartel, it’s being set by U.S. drilling companies producing oil from shale deposits. And those drillers are thriving largely because of three key advantages, ones that I call the three Rs: rigs, rednecks, and rights.

 

(Snip)

 

As for OPEC, it will no doubt remain in business and continue garnering lots of media attention. But the energy story of the moment is happening right here in the United States. The combination of innovation, price, and mineral rights have allowed American drillers to unlock enormous quantities of oil and gas, and that, in turn, has allowed the U.S. to turn OPEC into an also-ran.

[SrWoodchuck]

@Valin

 

Think maybe the author of the article got one thing wrong.....it's "roughnecks" not "rednecks" although they may still be red.

[Valin]

@Valin

 

Think maybe the author of the article got one thing wrong.....it's "roughnecks" not "rednecks" although they may still be red.

 

 

One of the reasons "Our Good Friends The Saudis" want to keep oil prices low is they are hoping to kill fracking. On the positive side (low oil prices) this really hurts the Russians and the Iranians.

[Valin]

OPEC Sets Up U.S. Shale Showdown

Nov 28, 2014

 

OPEC met, mingled, and in the end did nothing of consequence in Vienna this week. The cartel’s members convened for a highly anticipated summit to discuss what, if anything, should be done about the plunging price of crude oil, the commodity on which each petrostate member relies on to stay solvent. But the most important delegation in these discussions, the Saudis, blocked any potential production cut, essentially ensuring that the bear market was here to stay.

 

As a result, crude prices took another tumble, down below $72 per barrel at last check, a far cry from the $114 per barrel it was fetching back in June; one Rosneft official is now predicting prices will fall below $60 per barrel next year.

 

OPEC is playing a game of chicken with American shale producers, betting on the fact that the price of oil will squeeze out U.S. competition which has contributed to a global oversupply as fracking has unlocked large new reserves of crude. Those shale formations are expensive to work with, and as such require a relatively high price of oil to profitably produce. OPEC expects these newcomers to be the ones to constrict production and stop the price slide. The FT reports:

 

(Snip)

 

But there’s another force working against OPEC: American innovation. The scope of the U.S. shale revolution has been outshined only by the pace at which it has arrived, and the industry is relentlessly seeking ways to extract more oil, more efficiently. Current prices are a threat to operations in some of the more expensive American shale formations, but the bulk of the industry can still turn a profit, and it’s hard at work improving its methods.