The U.S. move away from punitive military strikes against the embattled Syrian regime over its alleged use of chemical weapons on rebel forces, and efforts to explore a joint diplomatic effort with Russia have calmed the market despite conflict and political upheaval across the Middle East.
Not so long ago, such turmoil in a strategic energy-producing region would have pushed oil prices through the roof. But the avoidance of U.S. strikes in Syria and the improving prospects of a diplomatic resolution of the troublesome Iranian nuclear crisis have soothed market jitters.
The first nine months of 2013 produced a steady worsening of the Syria crisis -- with spillover into neighboring Jordan, Lebanon, Turkey and Iraq -- while there was no sign of a possible resolution of the confrontation over Iran's contentious nuclear program.
"These factors alone, in years past, would have been sufficient to traumatize global oil markets and force up prices," Oxford Analytica noted this week. "Yet on this occasion the picture was even bleaker, with several Middle East producers facing output difficulties."
Even before the positive developments "the price of crude oil seldom exceeded $110 a barrel -- at a time when production from several Middle East producers has been significantly reduced," it observed.
"The fact that the global market largely shrugged off both the Syria crisis and the region's supply tightness" -- severely restricted Iranian production, with crisis-caused cuts in Iraq, Libya, Yemen, Syria and Sudan -- "reflects the fast growth of non-Middle East and non-OPEC production, particularly from the United States," the report said.
The unprecedented scale of shale oil reserves found across the United States had been the main game-changer. The prospects of further shale oil bonanzas in Europe, Africa and Asia serve to further diminish the Middle East's importance in the energy sector.
Indeed, Saudi Arabia, for decades the world's top oil producer, with spare production capacity and immense economic and political influence, is now being eclipsed by the nation that most depended on a steady supply of affordable Saudi oil and tailored its strategic policies to that dependence.
U.S. shale oil reserves are so vast that just one of its major fields, the Green Valley Formation spanning the western states of Utah, Wyoming and Colorado with 800 billion barrels of recoverable oil, is three times bigger than Saudi Arabia's 267 billion.
However, as analyst Ed Crooks observed in the Financial Times, "North American production costs are significantly higher than in many parts of the Middle East.
"That means the important question for the future of the [United States] as 'the new Saudi Arabia' is what the old Saudi Arabia makes of it.
"OPEC has made it clear it is watching the U.S. oil boom with apprehension, and rightly so; it is the greatest threat to the cartel's power since the fields of Alaska and the North Sea were opened up in the 1970s," Crooks wrote.
"As U.S. production grows, OPEC countries will be forced either to restrict expected growth in their output -- whether by slowing investment in new capacity or holding increased unused capacity -- or accept a much lower oil price."
If sanctions on Iran are rolled back in the event of a diplomatic breakthrough, its production will pick up, and with restored output in Libya, Iraq and Sudan, prices will be pushed down as the region's importance as a global supplier diminishes.
OPEC may seek to reduce production. But with Iraq pushing output to the maximum to bankroll postwar reconstruction, and Iran driving to make up for sanctions-induced losses, "that will put pressure on Saudi Arabia to trim its output, leading to tension among OPEC Middle East members," Oxford Analytica warned.
"The Middle East faces a period of readjustment -- with the former dominance of global oil markets tempered by the emergence of the United States and other non-OPEC states outside the region as major market suppliers," it said. "Unlike in the past, political crises in the Middle East and regional supply tightness no longer trigger a knee-jerk spike in global prices automatically."
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