New Swing Producers | Russell T. Rudy Energy LLC
For some time now many industry observers have speculated that U. S. shale operators are becoming the new “swing producers” in the world oil market. “World Oil” recently cited remarks by Olivier Appert of the French Committee of the World Energy Council, who has added his voice to the chorus.
Until the 1970’s the global energy market was dominated by the “Seven Sisters”, the largest international oil companies. However, after the Arab Oil Embargo of 1973, swing producer status shifted to OPEC. Appert contends that the oil market paradigm is shifting and U. S. shale producers will now hold the dominant position, and as such, be able to set oil prices.
Appert observes that for the last 40 years OPEC has increased production when markets were tight and reduced quotas in times of over-supply. As a result of the shale revolution, he now sees U. S. operators assuming this role. To support his theory he notes that recently annual U. S. oil production has increased by 2 million barrels of oil per day, the equivalent of Norway’s total output. This has led to a global energy surplus which has in turn triggered a price collapse. However, in spite of a significant reduction in investments, domestic production has remained relatively stable. This he attributes to cost reductions and operating efficiencies. Consequently, he sees this flexibility as enabling the U. S. to become the new swing producer.
However, I think that “swing producer” is a dubious distinction. Rather than setting prices, U. S. producers are reacting to them. OPEC is a cartel of 12 state-owned oil companies who do not report to shareholders and operate as largely sovereign entities. The U. S. oil industry is composed of thousands of companies which are responsible to investors who expect returns on their capital. Consequently, collaboration among these companies to set prices is not only impossible, but also illegal under U. S. law.
Yes, the U. S. is assuming a larger role in global energy markets, but this does not entail the ability to determine prices.
To read the article in its entirety, please go to http://www.worldoil.com/news/2015/8/19/us-shale-operators-may-be-the-new-swing-producers .
