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US Shale Oil Threatens to Derail OPEC’s Future: IEA

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The rise of North American oil supplies could test the future of OPEC which may have to curb supply to accommodate rising shale oil volumes, a new report has found.

The increase in U.S. output is a “defining feature of tomorrow’s market” according to International Energy Agency’s oil market report and could test the producer group’s share of the global oil market.

“The producer group, ineluctably faces the test of having to rein in supply and accommodate rising volumes of shale oil – unless falling prices curb shale oil production first,” the report found.

Non‐OPEC supplies rose by 570,000 barrels per day in July to 54.9 million barrels a day, with North America providing around 40 percent of the growth, said the IEA, with Canada rather than the U.S. responsible for most of this increase.

However, OPEC’s imminent challenge is less future demand issues and more practical difficulties in bringing production to market, the IEA said, as domestic developments in member countries continue to cause production strife.

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Shale Oil Boom Rattles OPEC

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Photo Credit: joern_kh

At a critical Friday meeting in Vienna, the Organization of the Petroleum Exporting Countries (OPEC) will set production policy. For the first time, they will be grappling with the challenges of shale oil, even none of the member states are major shale oil producers.

The shale boom began in the U.S. as a ripple in North Dakota and Texas. Some thought its impact would be limited and regional, not global. Now that uptick on our domestic production curve has triggered a tsunami with geopolitical implications.

That’s because the U.S. does not need 100% energy independence to get OPEC’s attention. Due to production but also conservation and a protracted recession, our need for imported oil has contracted from 60-70% of consumption to about 40%, headed south. As the world’s largest crude oil market, changes in our domestic supply picture must necessarily reshuffle the import mix. Remember how skeptics argued that the shale boom is “a mirage“? I have often maintained that domestic supply increments of 500,000 barrels per day can be significant in a worldwide 90 million bpd marketplace. We’re starting to see that play out, albeit in some surprising ways.

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