Having just left Saudi Arabia en route to Israel, President Trump accomplished something historic just by stepping off the plane. But there’s more to this triad of Trump, America and nations of the Middle East than just combating terrorism. Any ‘feel goods’ Trump may be dropping on Arab nations may be little more than salve on a wound that the U.S. petroleum industry has sliced open and is pouring lemon juice on.
The majority of member countries of OPEC are, of course, nations of the Middle East. And while still fabulously wealthy, OPEC nations haven’t been living as high on the hog — oops, make that on the camel — as they once were thanks to the efforts of U.S. petroleum producers, primarily extractors of oil shale.
The United States has rightly been called “the OPEC of coal and shale.” We are the world’s leading supplier of coal and in the form of shale have more oil reserves than both Saudi and Russia. Our reserves dwarf most of the rest of the planet, it’s just that our government won’t let us get at it. But now with Trump set to unshackle most if not all of the Obama handcuffs on domestic producers the member-states of OPEC –who’ve already been feeling the pain– are finding themselves in need of an hospital.
Bloomberg thoroughly covered the situation in a piece it titled “U.S. Shale Roars Back at OPEC“:
“OPEC may get its members to agree to continue to tamp down oil production, but it will be a Pyrrhic victory.”
[Hold it right there. That’s not your everyday reference: a Pyrrhic victory
is one that inflicts such a devastating toll on the victor that it is tantamount to defeat. Someone who wins a Pyrrhic victory has been victorious in some way. However, the heavy toll negates any sense of achievement or profit.]
“In November 2014, the Organization of Petroleum Exporting Countries decided to keep production levels high in the hope it could maintain market share. But that was a difficult task to begin with, and since then, U.S. shale producers have become even more efficient.
By the time OPEC reversed course in November 2016, sending oil prices up as much as 10 percent, shale had already gained ground.
There are areas in the enormous Permian and Eagle Ford shale fields in Texas where producers can break even at prices as low as $34 a barrel, according to Bloomberg Intelligence.
And analysts now say U.S. shale production will grow even faster than expected. Macquarie Group now thinks production will increase 1.4 million barrels a day through December, up from a previous growth estimate of 0.9 million barrels a day. JPMorgan Chase & Co. doubled its forecast to an increase of 800,000 barrels a day for the same period.
As OPEC and non-OPEC producers (namely Russia) cut back on production, U.S. shale producers are moving to quickly fill the gap. Their output increase is equal to about half of the OPEC cuts and twice that of Russia’s cuts, according to a report out this week by Eugen Weinberg, head of commodity research at Commerzbank.
“If the production cuts were to be extended, the participating countries would lose further market shares, which they are hardly likely to accept for any length of time,” the report said.
It isn’t going to get a lot better for OPEC in 2018, either. JPMorgan is forecasting U.S. shale to grow by 1.05 million barrels a day next year, while Bank of America Merrill Lynch has a figure of 950,000 barrels a day.”
All that is analysts’ and eggheads’ ways of saying “Texas is kicking some ass.” And with Trump reining in the rogue Obama agencies like the EPA, BLM, Fish & Game and others once beholden to green/global warming/anti-petroleum special interests, plus rescinding executive orders that had locked up and made off-limits millions upon millions of U.S. acreage – it could very well be we finally have an administration not just talking energy independence but actually doing something about it.
When and if the full fury of American ingenuity meets up with our vast stores of resources – OPEC could end up licking its wounds for a long, long time to come.
[Note: This article was written by Derrick Wilburn]