Source: Bloomberg April 23, 2017 3:00 AM EDT
“It was all so simple. By lifting restraints on output, Saudi Arabia would stop subsidizing high-cost oil producers and halt the rapid rise in U.S. production that was eating into OPEC’s market share. At least, that was the logic back in November 2014.
But things haven’t gone according to plan. OPEC’s experiment with production curbs has failed. More worryingly, the strength of shale’s rebound suggests that OPEC faces a long-term struggle against this new source of supply in an industry where technological advances are the norm and today’s niche play becomes the next decade’s global standard.”
“But the worry for OPEC goes well beyond the current market imbalance. The shale industry is in its infancy. True, the techniques of horizontal drilling and hydraulic fracturing have been used in the oil industry for decades, but their widespread application to shale formations is not much more than five years old. What should really be giving OPEC oil ministers sleepless nights are the parallels between shale and other industry sectors. It would be extremely rash to assume that advances in technology and geographical spread that we have seen in deep-water oil production, for example, will not apply to the shale sector.”