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OPEC unsure it can ‘live together’ with U.S. shale industry

by Erika Green

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The head of OPEC said this week his organization doesn’t know how to coexist with the U.S. shale oil industry.

“Shale oil in the U.S. — I don’t know how we are going to live together,” Abdalla Salem El-Badri, OPEC secretary-general, told an audience of oil and gas industry executives at the annual IHS CERAWeek conference in Houston, Texas.

OPEC, the Organization of Petroleum Exporting Countries, never before has encountered a competitor that can respond as rapidly to price changes as U.S. shale producers, El-Badri said.

That quick response complicates the cartel’s ability to raise industry prices by reducing output, Kallanish Energy understands.

“Any increase in price, shale will come immediately and cover any reduction,” according to El-Badri.

OPEC launched a price war against all high-cost producers in November 2014, by not reducing output despite a global oversupply, basically saying it cared about market share, not price.

Since then, oil prices have plunged by roughly 70%, hitting a 12-year low of about $26 on Feb. 11.

Admitting the policy hasn’t worked as planned, El-Badri said OPEC didn’t expect oil prices to drop as far as they had when it decided to keep pumping near capacity.

OPEC’s strategy began to shift last week, when the oil ministers of Saudi Arabia and Russia agreed to freeze their output at the January level, provided other oil-rich countries joined.

El-Badri said the new policy will be evaluated in three to four months before deciding whether to take other steps.

“This is the first step to see what we can achieve,” he told the CERAWeek audience. “If this is successful, we will take other steps in the future.”

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