OPEC meets 5 June in Geneva to discuss the cartel’s strategy for the coming years. Reuters News Agency has obtained the draft report of OPEC’s long-term strategy. This report’s content will be a key discussion at the meeting. The report suggests that the global oil glut could persist for the next two years. In general that seems like pretty good news for the world and specifically for U.S. if not for the OPEC cartel and Russia.
The drop in oil prices that began late last year did not shut down the fracking wells that were already producing as the wells continued to operate to cover their variable costs. It did cause drill rigs to be cut every week for 23 weeks. Reuters reports that only one rig was cut the week of 18 May. Experts seem to agree that fracking can be profitable at a West Texas Intermediate (WTI) price around $60/barrel. That price level should bring on more fracking operations. Today’s price is $59.89. (changes often.)
“OPEC’s ability to cut and raise production over the past decades to balance demand has earned it a reputation of being a swing producer. But the long-term report suggested it is tight shale oil that is now playing this role.
“Recent structural changes in the growth patterns of non-OPEC supply as a result of the substantial contributions from North American shale plays might prove to be a turning point (e.g. short lead times of the projects and higher short-term price elasticity),” the report noted.
It said new and cheaper technologies in extraction of tight crude, shale gas, and oil sands would guarantee aggregate growth at 6 percent per year and contribute 45 percent of the growth in energy production to 2035.
“Improved technology, successful exploration and enhanced recovery from existing fields have enabled the world to increase its resource base to levels well above the expectations of the past… The world’s liquids resources are sufficient to meet any expected increase in demand over the next few decades,” it said.
“With plenty of oil still left in familiar locations, forecasts that the world’s reserves are drying out have given way to predictions that more oil than ever before can be found,” the report said.
Pressure on OPEC is mounting as the low prices result in serious consequences for OPEC members that rely on oil sales revenue to sustain their economy. This site’s posting “Why Are Crude Oil Prices Falling?” provide some insight on which countries are hurting.