The plummeting crude price as a result of lower than expected economic recovery, strong dollar and USA Shale oil has resulted in shocking waves amidst the producers as well as investors .Over the past quarter, price of WTI crude has fallen from 96 dollar per barrel to 79.98 dollar while Brent crude has sharply decreased to 85.34 dollar per barrel, it seems daunting to OPEC that has been enjoying an unprecedented monopoly over the oil output and 1206 billion barrels reserve (it consist of 81 percent of the world ) The questions over here arise: why OPEC is sitting quiet? Why is it not taking any measures in this direction?
The dragon –OPEC- caters 40 percent of supply in the overall demand and buzz is that its members have discrepancy over dealing with glut crises. According to reports, OPEC must cut their output by 2 million bpd to balance the demand and supply, but Saudi Arabia that is the largest producer of Oil and has injected further 0.5 percent in September to 9.65 is reluctant to do so. Source familiar with the matter claimed that Saudi Arabia does not want to lose its share in international market while Kuwait has also joined its hand. Veteran believes that both countries are trying to counter the US Shale threat by employing this tactics. Whether they perceived US shale a genuine threat or just illusion, it can be judged by their acts as despite crude price plummet, they are still willing to intact their current supply.
Moreover, the same stance is reiterated by the OPEC Secretary General Abdul Badri at the conference held on 29 October at London. He said,” if price stays at 85 dollar per barrel (brent crude), we will see a lot of investment, a lot of oil, going out of market’. badri said,’ about 65 percent of the producers, they have high cost. Not OPEC’ while few member of OPEC like Venezuela, Iraq and Iran wants overture on the part of OPEC as it has responsibility to keep up the Supply and demand balance.
However, Pundits believe that Badri’s statement is the strongest signal of content regarding the Oil price as it hurts most to US shale oil producer than that of OPEC and raised the question over the long term stay of shale oil and gas production. Whether shale may stay for protracted period or not ,yet it is of use to mention over here that the fledgling US sector has produced 8.5 million barrel oil per day in July of this year while the US has added 3 million bpd in additional capacity to global supplies since 2011.However, A lot of theories and opinion are surrounding in the media with regard to US Shale or OPEC but who will be the winner in the fight of both dragon? We will have to wait and watch to know the outcome.
Author: Humair Rana