Busted: OPEC’s crisis diplomacy fails as shale oil revolution booms

by WorldTribune Staff, June 26, 2017

OPEC’s oil producer club “is facing a crisis of old age,” an industry analyst said.

OPEC “is falling apart internally, confounded by the world and increasingly irrelevant,” according to Julian Lee, a senior analyst at the Center for Global Energy Studies.

The two main areas where OPEC has failed include completely misjudging the North American shale industry and failing to use the boom times “to invest for a future of low oil prices,” Lee wrote for Bloomberg on June 25.

OPEC “shows little understanding of where it is, how it got there or where it’s going,” Lee wrote.

Output agreements put together last year are failing.

“Nearly 12 months of shuttle diplomacy culminated in two deals that would see 22 countries cut production by nearly 1.8 million barrels a day,” Lee wrote.

June represents the final month of those deals and oil prices are lower than when they were agreed on, Lee noted. “Not only have producers sacrificed volume, but they earn less for each barrel they do produce.”

Additionally, “there’s no appetite for the big cuts that would demand real sacrifices in countries such as Russia, where normal seasonal factors helped it lower production in the first half of the year,” Lee wrote. “Just sticking to current output levels could be difficult for the rest of 2017: early maintenance work has helped several OPEC members meet their targets but that can’t continue. Then there’s the problem of recovering output from Libya and Nigeria, both exempt from the cuts.”

And the Saudis’ beef with Qatar “could create the most serious split” in OPEC since Iraq invaded Kuwait in 1990, Lee noted. “Iraq might be in (Saudi Crown Prince) Mohammed bin Salman’s sights next, as Iran’s influence there grows and Baghdad lags the rest in implementing output cuts.”

“OPEC has completely misjudged the North American shale industry and seems not to understand how it is still evolving rapidly. It’s a little like trying to explain the internet to my 85-year-old mother, or my 12-year-old daughter trying to explain social media to me.”

“Having failed to use the good times to invest for a future of low oil prices, OPEC is facing a crisis of old age,” Lee wrote.

“It is falling apart internally, confounded by the world and increasingly irrelevant.”

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