Unabated Oil Shale Pumping is OPEC’s most Glaring Worry

The trending dip in crude oil prices after OPEC’s decision to keep its production ceiling unchanged heralds the most terrible decision ever, according to Iraq’s oil minister and various other industry speculators. Oil has been spiraling lower this year as the US pumped out an unprecedented amount of oil because of the wonders of fracking and oil shale. American ingenuity is at it again.

The trending dip in crude oil prices after OPEC’s decision to keep its production ceiling unchanged heralds the most terrible decision ever, according to Iraq’s oil minister and various other industry speculators. Oil has been spiraling lower this year as the US pumped out an unprecedented amount of oil because of the wonders of fracking and oil shale. American ingenuity is at it again.

What is also surprising is how the prevailing conflicts in the Middle East and Ukraine have failed to disrupt supply. The group produced almost 1 million barrels more than the ceiling last month, according to data compiled by Bloomberg.

Iraq Progress

The global benchmark, Brent crude, fell the most in over three years after the 12-member OPEC completed talks, and traded at $72.50 a barrel in London last month. That is 29% less than the $102.20 price that Iraq needs to break even, according to an International Monetary Fund estimate. Iraq, the second-largest producer of oil in the in the Organization of Petroleum Exporting Countries, has also left its output target unchanged at 30 million barrels.

Of course, Iraq would not have any oil production at all if America did not suppress Al Qaeda and Saddam loyalists from 2004 to 2010. Iraq would still be a mess. Iraq could also have more oil production if they cooperated with America as ISIS has taken over some Iraq oil fields in 2013 and 2014. Iraq should not have rejected the status of forces agreement. This decision has now cost Iraq much of its territory because American forces pulled out and left Iraq exposed to threats like ISIS.

However, and furthermore, according to a top official, OPEC is considering a five percent cut in production. Iran’s Bijan Namdar Zanganeh said that the decision was not what his nation had wanted. Venezuela, on the other hand, voted in favor of a cut, according to Rafael Ramirez, the nation’s OPEC representative.

A Snapshot of the Past and Present for OPEC

In the recent past, the OPEC cartel has done a marvelous job in supporting high oil prices and keeping them stable. It has given US shale-oil producers plenty of room to invest in their infrastructure and create the current gushing supply of black gold, enough to rival OPEC. In reality, OPEC is now engaged in a price war with US shale oil producers and will apparently only reduce production when all other non-OPEC producers agree to do the same.

Although western economies have become significantly less oil-intensive over the past couple of decades, demand for oil exists in energy-hungry developing countries such as China and India. Also, in today’s energy economy, OPEC has less influence than it once did, partly due to the importance of non-OPEC producers such as Russia, the US shale revolution, and also partly because of the significant developments and breakthroughs in other sources of energy.

Threats for the Future of OPEC

According to International Energy Agency, “There’s too much oil in the world, and not enough buyers. There are 2m barrels per day of crude oil production that don’t have a home”. In earlier years, when crude-oil prices would drop below a certain point, OPEC would swiftly react by simply cutting production and creating a floor price for their product. However, after their decision last month to do nothing, oil prices have continued to slide and some industry analysts see $40 per barrel in the not too distant future.

This only upsets rich environmentalists who do not care to see citizens of the world having energy freedom. Some are even calling for an increase in the gas tax though taxes last forever and low energy prices do not. Low energy costs could last with increased offshore drilling and opened federal lands for fracking.