Insights - Energy Dais

OPEC vs US (Part III)

Will US and OPEC accept the new normal?

There was a time when the OPEC was the prime moving force behind the global energy dynamics. It could control the global oil production and prices. It still accounts for about more than 40 per cent of the world’s oil production. However, in the present times, OPEC is not the only organisation determining the contours of global oil production. Technology has transformed the platform in unprecedented ways. Technological advancements like ‘horizontal drilling’ and ‘fracking’ are boons in this century and have successfully enabled the exploration and production of shale oil in the US on a huge scale. Despite being a non-OPEC nation, the United States commands a significant influence in the oil market today. In the beginning, the OPEC had underestimated the potential and adaptiveness of the US shale industry. The oil price crash has actually made it a more formidable competitor. This has largely been possible due to innovative technology and enhanced efficiency.

How did OPEC vs US rivalry started? Click here to access the first part of this story blog.

A sneak-peak at the past and present

The history of the relationship between the OPEC and the US shale oil industry has moved forward to a great extent as soon as the cartel discovered that it had a surprising rivalry slowly coming to the surface in a primary market for its oil over five years ago. Over the past several years, OPEC’s perception of the US shale industry has undergone a dramatic change. It has finally acknowledged and accepted the presence and persistence of the US shale industry. Initially, both of them ignored each other but finally, they are talking despite having opposing agendas. They realised that the existing tensions cannot be stretched too far due to the emerging oil market trends. It became important to contemplate whether the two industries can co-exist or are ready to take on another major fight in the coming times. Most of the OPEC members feel that shale needs to be accommodated and they must co-exist. However, another battle is round the corner if the US makes any attempt to sabotage the market. The oil relationship between the two needs a transformation for better growth prospects of these two entities.

To find out the contemporary status of OPEC vs US, click here.

Will they work in synergy or will rekindle the past-rifts?

The burning question in the present context is that whether the oil prices can stabilise due to a change in the US-OPEC relationship. We need to understand that OPEC is a grouping of separate countries and there exists a problem of coordination among them. Amidst this background, it is important to build and establish concrete relationship with non-OPEC countries which are emerging as major forces in the oil industry. The volatility that prevails in the global crude market today can be taken care of if there is a mutual cooperation amongst oil producing nations. Technology has been the real game changer here. OPEC has lost the firm grip it used to have on the oil prices. An uncertainty prevails around the US shale. A very significant constraint obstructs the ability of OPEC to manage the oil market if prices rise to $60 and a large volume of oil can come back quickly.

Amidst the background of rising global demands, both- the US and the OPEC need to acknowledge each other’s presence and must find out ways to cooperate and co-exist with each other. Many analysts estimate that US shale production might go upto 1 million bpd which is a staggering figure. Moreover, many of the consumers of oil and customers of OPEC are more than glad to see an option opening up. India, which is the world’s third largest consumer of oil, looks up to the United States for sizeable supply. The new normal must be accepted and accommodated and how the US-OPEC trajectory affects the global oil market needs to be understood in entirety.

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