U.S. shale gains influence in oil markets

OPEC was established in 1960 by the founding members of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. For a brief period, the oil cartel became the dominant force behind global oil prices and a key intermediary of geopolitical power, with its members controlling nearly half of global oil production and over three-quarters of global oil reserves. . As U.S. oil production entered a period of seemingly inexorable decline after peaking in 1970, Washington desire To bolster energy security and create a bulwark against Communist expansion in the Middle East, Saudi Arabia has become a key ally of the United States. OPEC at the height of its power in the 1970s showed flexibility in reducing oil production, which caused prices to spiral upward, triggering two oil price shocks that triggered global recessions. Since then, OPEC’s power has steadily worsened, with this decline accelerating over the past two decades due to the rapid growth in non-OPEC oil production, especially in the United States and Brazil.

The shale oil boom in the United States has pushed up land production rapidly after nearly three decades of decline. US imports of crude oil from the Middle East have plummeted and Congress lifted a four-decade restriction on US oil exports. Even Riyadh’s 2014 plan regain market share and wipe out the US shale oil industry by opening the taps and dramatically increasing production, leading to a sustained decline in crude oil prices, failed. In 2018, the United States exceeded Saudi Arabia will become the world’s largest oil producer, pumping 10.96 million barrels of oil equivalent per day. Since then, production, led by the shale oil industry, has increased, with the oil price collapse of March 2020 having little lasting material impact on the U.S. shale oil industry. The United States Energy Information Administration estimates Oil production 2020 was an average of 11.3 million barrels of crude oil per day, which, although a 7% decrease from 2019, is still 29% higher than the 8.8 million barrels produced daily in 2014 during the peak of the shale oil boom. The EIA expects US oil production in 2021 to decline 2% year-over-year to 11.1 million barrels per day, 26% more than in 2014. The resilience of The US shale oil industry can be attributed to improved technology and expertise which along with growth operational efficiency gains have resulted in steady decline in breakeven prices. According to the Dallas Federal Reserve, new shale oil wells have an average break-even price from $ 46 to $ 52 per barrel compared at about $ 77 per barrel in 2014. Everything indicates that US shale could surprise energy markets again in 2021 and continue to pump crude oil at a breakneck pace despite falling prices. US foreign policy is also eroding OPEC’s geopolitical power and its ability to manipulate oil prices. Sanctions against Iran and Venezuela prevent these oil-rich countries from increasing their oil production or strengthening their influence within the cartel. It also rewards Saudi Arabia by retarding Iran’s economic growth, thereby reducing Tehran’s influence in the Middle East and strengthening Riyadh’s authority as OPEC’s top producer. The White House petro-diplomacy under President Trump highlights the diminishing influence and capacity of OPEC to manipulate oil prices. In 2018, when Brent rose to over $ 70 and flirted with $ 80 a barrel, threatening U.S. economic growth, Trump weighed put pressure on OPEC to stimulate production by keeping prices low. Then in early April 2020, after the collapse in oil prices due to the COVID-19 pandemic and the looming price war between Saudi Arabia and Russia, threatening the survival of the US shale oil industry, Trump stepped in again. He contacted Riyadh and threat the withdrawal of US troops unless Saudi production cuts crude oil prices.

Related: Shale Giant Chesapeake Breaks Out of Bankruptcy

It is not just the rapid growth in US oil production over the past decade that challenges OPEC’s control over oil prices and geopolitical power. Saudi Arabia’s growing dependence on US support to wage its proxy war against Iran for control of the Middle East and leadership of the Muslim world as well as OPEC has weakened independence and the geopolitical power of the cartel. Riyadh benefits enormously from Washington’s foreign policy, including the severe economic and diplomatic sanctions imposed on OPEC members Iran and Venezuela. By denying the two countries access to global energy markets, they are unable to expand their oil production, which limits their influence and gives Saudi Arabia a freer hand in establishing a cartel policy. This neither guarantees Venezuela nor particularly Iran can prosper thanks to the increase in economic wealth that comes from increased oil production, placing severe pressure on the two pariah regimes while strengthening Saudi Arabia’s position. A stronger, but somewhat less independent, Saudi Arabia amplifies the effect of U.S. regional policy while giving Washington a more reliable proxy for influencing regional affairs and maintaining control of the Middle East’s vast oil resources. It also weakens Moscow’s ability to expand its regional influence through its alliance of convenience with Tehran, which saw the two countries support the dictatorial regime of President Bashar al-Assad during the bloody civil war in Syria. These developments have given Washington a greater say over OPEC oil production and, ultimately, prices. This is underlined by Riyadh decision to cut one million barrels a day of Saudi Arabia’s oil production to support prices and absorb the increase in Russian production. Not only has Riyadh supported oil prices at a critical time, especially for the US shale, but says the Saudi government is seeking to curry favor with the new Biden administration.

For these reasons, President Biden must carefully consider whether joining the Joint Comprehensive Plan of Action (JCPOA) and removing all U.S. sanctions is the right move, especially with Tehran. enrich uranium in violation of the agreement. This is especially the case when considering Iran’s recent belligerence and aggression. The Islamic Revolutionary Guard Corps recently entered South Korean tanker in Strait of Hormuz as Tehran skyrockets support for the dictatorial socialist regime of Venezuelan President Nicolás Maduro despite humanitarian crisis his government broke loose.

By Matthew Smith for Oil chauffage

More Most Popular Readings From Oiluka: