Sea change: Attacking U.S. shale topples OPEC itself

Sea change: Attacking U.S. shale topples OPEC itself

[Ed. – OPEC was formed in 1961 to coordinate the management of supply by oil-producing nations, for their mutual and long-term benefit.  A week and a half ago, industry analysts reported that an OPEC decision to keep the spigot loose, in spite of falling crude prices, was intended to undercut the U.S. shale-oil industry, which has higher costs than standard oil production and loses profitability as the world price of crude goes down.  But the market is a stern taskmaster, and 50 years of innovation have already weakened the cartel.  When OPEC tries to outsmart the market to launch a petty attack, it’s OPEC that will lose.

[The reporter cries for OPEC and “stability” here, but the market’s strongest incentive is to deliver a product to consumers.  The dire warnings in the article about winners and losers will look foolish at the other end of this transformation.]

The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over coming months as market forces shake out the weakest producers, Bank of America has warned.

Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a mucher cheaper source of gas for Europe.

Francisco Blanch, the bank’s commodity chief, said Opec is “effectively dissolved” after it failed to stabilize prices at its last meeting. “The consequences are profound and long-lasting,“ he said.

The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefits only the Mid-East petro-states with deepest pockets such as Saudi Arabia. If so, the weaker peripheral members such as Venizuela and Nigeria are being thrown to the wolves.

The bank said in its year-end report that at least 15pc of US shale producers are losing money at current prices, and more than half will be under water if US crude falls below $55. …

The claims pit Bank of America against its arch-rival Citigroup, which insists that the US shale industrial is far more resilent than widely supposed, with marginal costs for existing rigs nearer $40, and much of its output hedged on the futures markets. …

Mrs Schels said the global market for (LNG) will “change drastically” in 2015, going into a “bear market” lasting years as a surge of supply from Australia compounds the global effects of the US gas saga.

If the forecast is correct, the LNG flood could have powerful political effects, giving Europe a source of mass supply that can undercut pipeline gas from Russia. …

Bank of America said the oil price crash is worth $1 trillion of stimulus for the global economy, equal to a $730bn “tax cut” in 2015.

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