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Home / Business / Shale surges, but oil market power swings back to Saudis

Shale surges, but oil market power swings back to Saudis



The US produces more oil than ever before, but when it comes to pulling the strings of the market, Saudi Arabia is still king.

Oil flows from slate fields at record speed, driving US production to about double in a decade. This remarkable growth had led some observers to pronounce the US as a new swing producer on the market – a coat that has long been held by Saudi Arabia.

However, with prices rising since 2014, the kingdom still has the power to respond much faster than hundreds of private companies that are spreading from Texas to North Dakota.

In the last signs of Saudi Arabia, Energy Minister

Khalid al-Falih

said on Friday that the organization of the oil exporting countries and their allies would likely open the taps to address rising prices after their production cutback and threats against deliveries from Venezuela and Iran pushed the oil price down to $ 80 a barrel this month. 1

9659005] This news pushed Brent's prices up nearly 3% to $ 76.44, while US crude oil prices promptly fell 4% to close at $ 67.88, the largest percentage decline since July.

Saudi Arabia's clout comes from overcapacity. The Kingdom is able to produce up to 12 million barrels a day, although it has kept its production much lower due to the OPEC agreement. Its ability to open or close these faucets almost overnight allows Riyadh to influence price movements more than any other manufacturer.

U.S. Slate companies are much more agile than oil giants, which rely on cumbersome and time-consuming methods such as offshore drilling. But slate still needs several months' lead time between a price change and an increase in output – and that's a decision made by corporate bosses rather than politicians.

"Some years ago everyone loved the story" Shale is Superman "I would have said that we will never be in this situation again – we will never have to go to the Saudis with an oil question," said Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets. "But here we are."

Saudi Arabia's status as the world's best producer and de facto leader of OPEC gives it an oversized role in the global economy, which continues to be very sensitive to oil prices. By curtailing supply, the UK can boost prices at the pump, fuel global inflation and increase carriers' costs. Or it can bring relief by releasing more crude oil.

Saudi Arabia has adapted to the rise of shale through its partnership with Russia. The two largest exporters in the world have rarely worked together and often considered themselves rivals. However, after prices fell to less than US $ 30 per barrel in 2016, OPEC and Russia and other manufacturers closed around 2% of world output.

Even some US Oil Managers, who had reduced the role of OPEC in price stabilization, have prevailed. Harold Hamm, Chief Executive of Continental Resources Inc., said in 2016: "We and other producers have made the OPEC policy less relevant to the energy markets of the world." Earlier this month, however, it allowed OPEC's production cutbacks to reduce the flood

Since the price shocks of the 1970s, the US has relied on the Saudis to try and use their influence to keep prices stable. with mixed results.

Former US Secretary of Energy

Bill Richardson

He said he flew all over the world to meet with then-oil minister Ali al-Naimi to get him to regulate production up or down to balance the market. In 2000, Richardson pushed oil ministers to increase production after prices more than doubled in one year.

At that time, Mr. Naimi was the "benevolent dictator" of the oil market. "The Saudis controlled OPEC and they controlled oil prices," he said in an interview.

Saudi Arabia has rejected the status of a swing producer, but it has often behaved like one. In 2014, OPEC surprised the market by reducing production and slowing prices. Some analysts interpreted the move as the Saudis attempted to oust US shale from the market before OPEC reversed when it agreed in late 2016 to curb production.

Analysts said the move was a sign that OPEC had "balked" slate after failing. Some said it was too late for the cartel to regain relevance after it had withdrawn from the market for such a long time and the resilient US manufacturers were prepared to face price increases and cut back on nascent rallies.

But almost a year and a half After the entry into force of OPEC, OPEC's production agreement has resulted in a 35% increase in prices, allowing the group and in particular its de facto leader to regain ground.

While US manufacturers have risen rapidly, there has been growing pain in the shale field. "From overcrowded pipelines in West Texas to investors who want companies to focus on profits rather than barrels, they have raised questions as to whether they are can take the reins of the market. "

"The US Secretary of Energy can not only signal and regulate the way Saudi leaders can," he said

Daniel Yergin,

Vice Chairman of IHS Markit

As higher crude oil prices threatened to stimulate inflation and trigger a global economic recovery, pressure on the UK had increased.

Four Democratic senators demanded the president

Donald Trump

in a letter last week to "use your personal relationship with Saudi Crown Prince

Mohammed bin Salman

Urge Saudi Arabia to use its pivotal capacity to increase oil stocks before the summer season.

Some say that the success of OPEC is due to good timing.

"Last year, everything went well the producers [under the deal]," said

Robert McNally,

President of the Rapidan Energy Group. "The effectiveness of Saudi Arabia as a swing producer with limited reserve capacity and high geopolitical risk is limited."

Write to Alison Sider at alison.sider@wsj.com and Georgi Kantchev at georgi .kantchev @ wsj.com


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