The chorus in the oil market calling for deeper production cuts gets louder almost every day. By resisting the clamor, OPEC is breaking with its own history.In bold again for those missed it the first time around: the emergence of U.S. shale oil producers -- who can adjust supply more rapidly than OPEC’s previous rivals ...
As crude sank below $50 a barrel -- less than half the price of two years ago -- market-watchers from Goldman Sachs Group Inc. to former OPEC officials said supply curbs imposed this year need to be intensified. That would be consistent with past behavior, when production cuts or increases often arrived in stages a few months apart.
This time is different. The emergence of U.S. shale oil producers -- who can adjust supply more rapidly than OPEC’s previous rivals -- means the Organization of Petroleum Exporting Countries cannot act with the same freedom it once did. As economic pressure mounts for exporting countries, using the old playbook runs the risk that new American supplies would fill in any extra cutbacks.
“When OPEC was in control, it would often act in stages,” said Chakib Khelil, a former Algerian energy minister who was OPEC president in 2008. “The market is different than in 2008. Today, non-OPEC plays a larger role in supply. And the major issue is how long can they sustain this supply.”
Oil has given up almost all its gains since OPEC and Russia launched their initiative to clear a three-year surplus. Their supply cuts have failed to deplete the world’s bloated fuel stockpiles quickly enough and West Texas Intermediate futures have declined about 16 percent this year, trading at $45.06 a barrel at 10:04 a.m. in New York on Thursday. Previously, that would probably have prompted OPEC to revise its plans and agree on additional reductions.
Bloomberg reports this like it's a fact, and a fact that everyone has known from "day one." But I remember analysts only two years ago suggesting US shale operators would be unable to quickly add output, that it would take six months to a year to ramp up production.
I guess they underestimated the "frackers" -- Aubrey McLendon, Harold Hamm, George Mitchell, Tom Ward, Charif Souki, and Mark Papa, to name a few.
Wow, I love this stuff.
Notes to the Granddaughters
This past year, Olivia, the middle granddaughter and fifth grader, took it upon herself to re-establish her school's garden. I do not know if she was influenced by Michelle Obama but I know she really, really like Ms Obama. Be that as it may, Olivia's garden was a huge success. There were three plots, mostly tomatoes, gourds, cabbage, herbs, and marigolds.
We stopped by the yesterday to see how the garden looked. It was quite amazing, to say the least: