OPEC Chief: U.S. Shale Helped Avert Total Chaos In Oil Markets

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By Irina Slav

The U.S. shale revolution helped avert a “major, major energy chaos” in the world, OPEC’s Secretary General Mohammed Barkindo said in a somewhat puzzling interview with CNBC this week. Barkindo was also quite delicate in his reference to the role U.S. shale played in the latest price crash, which, together with the praise, suggests the official head of the cartel is trying to make peace with any and all amid discussions in U.S. Congress about anti-OPEC legislation that would make its members liable to prosecution under U.S. antitrust laws.

Barkindo said OPEC had saved the global oil industry in 2016 when it struck the original production cut deal that saw almost 1.8 million bpd removed from global supply, but added that U.S. shale had helped to avoid a crisis, possibly implying a shortage of crude as demand rose.

The comments are somewhat contradictory: “The decisions that OPEC took, together with our non-OPEC partners, literally rescued this industry from total collapse,” he said, recalling how Brent crude fell below US$30 a barrel at one point in 2015. Since virtually all industry analysts and observers agree that it was U.S. shale development that led the surge in global oversupply that was the main reason behind the price drop, it is a bit unclear what energy chaos the shale boom helped avert.

Barkindo further said the OPEC decision to cut production had actually helped U.S. producers to survive the downturn that followed the 2014 price collapse.

“In particular, during this longest cycle where we saw prices crash by over 80 percent at one point, where we saw the supply and demand balance in (a period of) disequilibrium that had never been witnessed, where we saw more than 100 U.S. companies file for bankruptcy with all the negative consequences on the industry, the regions where they operate … no party was insulated,” Barkindo said.

Yet, it was OPEC initially opening up the pumps to the maximum that added to the flood of new U.S. supply and eventually brought about the price collapse, as those with longer memories will remember. This fact makes the OPEC secretary general’s remark borderline ironic, but it does suggest that Barkindo may be trying to appease the U.S. and reduce the likelihood of NOPEC legislation getting passed. This likelihood is not great to begin with: the bill is not the first one that Congress has discussed over the decades as a means of putting the brakes on OPEC’s cartel practices.

Interestingly enough, Barkindo had something to say about that, too. It was that “without OPEC, the U.S. would probably have created another organization to do exactly the same.” Now, this remark does not play into the scenario of the official trying to make better friends with the U.S. as it suggests the United States is no better than OPEC when it comes to market control practices, but it does seem to send the message that OPEC and the U.S. oil industry need each other.

This message was reinforced by Barkindo’s remark that OPEC and non-OPEC producers need to maintain their relationship “in order to sustain the relative, and fragile, market stability that we have been able to achieve.”

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