Paper: OPEC worked to derail U.S. shale

Statistics Norway says OPEC policies fluid, but lately working against rival producers.

By Daniel J. Graeber

OSLO, Norway, July 1 (UPI) -- Members of the Organization of Petroleum Exporting Countries altered their behavior to limit the role of U.S. shale oil producers, a Norwegian paper found.

"There is no consensus in the literature on how OPEC behavior affects crude oil prices," a discussion paper published Friday by Pal Boug, Adne Cappelen and Anders Rygh Swensen with Statistics Norway read. "Some studies treat the oil market as a standard competitive market where OPEC plays no important role, whereas others argue that OPEC is a dominant producer with a competitive fringe or a cartel that adjusts its production to influence crude oil prices in a way that benefits the member states."


According to OPEC, its mission is to coordinate member state polices to ensure steady income and oil market stabilization. This year, as crude oil prices dropped below $30 per barrel, the Saudi Cabinet of Ministers agreed to communicate with major oil producers in a way that would reduce fluctuations in crude oil prices, which peaked above $100 two years ago.


OPEC members earlier this year suggested freezing production at January levels in an effort to influence a market that at the time was skewed heavily toward the supply side. That proposal collapsed after Iran, one of Riyadh's main adversaries, said it wanted to regain a market share lost to sanctions.

The Norwegian authors point to research that suggests OPEC operates under "a cartel model," where as the dominate global producer, it's the one with the most influence over crude oil prices. Other studies find that it's largely Saudi Arabia that "fits the description of a dominate producer."

As the de facto leader of OPEC, and the group's largest producer, Saudi Arabia had in the past worked to protect its market share, a legacy highlighted by recent gains from Iran and the rise of U.S. shale oil production.

Recent OPEC trends, the Norwegian authors state, show Saudi Arabia defending a robust production policy to balance against potential supply disruptions from conflicts in the Middle East and North Africa. More recently, they suggest production policies remained steady despite the steep drop in crude oil prices to limit the role of rival producers.

"We therefore conclude that the OPEC behavior has changed significantly, probably to limit the role of competitors like American producers of shale oil," the authors for Statistics Norway wrote.


The U.S. Energy Information Administration reported total U.S. crude oil production in May at 8.7 million barrels per day. U.S. crude oil production last year averaged 9.4 million bpd.

A research note published earlier this week by ING Bank found Saudi Arabia may now be working to destabilize OPEC itself.

An economic agenda, dubbed Vision 2030, aims to boost Saudi Arabia's non-oil revenue and relies in part on raising money through the public listing of shares in the Saudi Arabian Oil Co., known also as Saudi Aramco. Billed as the largest-ever IPO, the 2018 offering would likely value the company at $2 trillion.

Once the IPO is triggered, Saudi Aramco will have to act in the best interest of its shareholders over its counterparts in OPEC.

"There is the potential that the Aramco IPO leads to the eventual break up of OPEC," ING said.

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