Source: Bloomberg 26 February 2017
The second coming of shale could be even more powerful than the first and OPEC seems to be getting caught unawares.
This is not how it was meant to be. OPEC launched a strategy to protect market share in 2014 with a specific aim to knock out high-cost oil production such as shale.
But U.S. oil production is growing faster now than it did during the first shale boom.
The long lead-times, complex development plans and huge up-front capital requirements associated with conventional oil fields simply don’t apply in the shale sector.
The shale industry is able now to extract so much more with so much less drilling that it is almost certain to keep growing.
OPEC has put itself back on the path of cutting output to support competing producers. It just doesn’t seem to have realized it yet.