How long will the cartel accept losing market share to American shale?
THE MEETING of the Organisation of Petroleum Exporting Countries in Vienna on July 1st and 2nd was, in some respects, a snooze. The deal announced by OPEC and its allies was the continuation of one struck late last year. For at least another nine months, daily production will remain 1.2m barrels below last October’s level. But behind the predictability giant problems loom, for the oil market and OPEC itself.
But OPEC’s decision to trim output points to further uncertainties within the alliance. The first is how long it will be willing to continue losing market share to America. In 2014, as American oil flowed freely, OPEC declined to curb output, hoping that slumping prices would teach gung-ho American oilmen a lesson. The ensuing crash pained petrostates and wildcatters alike.
That helps explain why, despite cutting production somewhat, Saudi Arabia accounts for almost as much of the global market as it did in 2016. Russia has been even more protected. That year it agreed to work with OPEC to stabilise the oil price. Its influence in the Middle East has grown and it has helped shape OPEC’s decisions, big and small.
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