OPEC back as 'swing producer'
There has been a ‘recalibration of costs’ since prices fell in June 2014, expert says
By Ovunc Kutlu
NEW YORK
As OPEC extended its oil production cut, the cartel has retained its position as a "swing producer" in the global market, a leading oil analyst said Friday.
"I think OPEC is actually back in business [but] as a swing producer," Daniel Yergin told CNBC.
OPEC has long been referred to as a swing producer, having the ability to control supply in order to influence the market and prices.
The cartel, however, refused to trim production in the past three years, despite plummeting prices. It finally agreed last November to cut output, in accordance with Russia, which is not an OPEC member, but the world's biggest crude oil producer.
The deal was extended Thursday through next March in order to trim the supply glut in the global market, bring balance to supply and demand worldwide, and increase crude prices.
"When the prices started down, there was this widespread thinking $70 to $80," said Yergin, who won the Pulitzer Prize for his best-selling book, The Prize: the Epic Quest for Oil, Money, and Power.
He said there has been a "recalibration of costs" since June 2014, when crude prices began plummet.
Since then, the low oil prices environment has been also costly for U.S. shale oil producers who managed to adapt to the new price setting.
"Three years ago, U.S. shale producers needed to see per-barrel prices much higher to competitive," Yergin said.
"But it's been so innovative. It's almost like we're looking at Shale 2.0. It's almost a different industry than it was three years ago," according to the Yergin, who is also vice chairman of consultancy group IHS Markit Inc.
Yergin noted that the U.S. shale production is profitable at $40 to $50 per barrel today.
"Next year, we actually think U.S. oil production won't increase as much because they've increased so much this year," Yergin said. "I think that's the kind of viewpoint OPEC took -- that they've got to run this thing into next year.”
With rising oil production in the U.S., OPEC and Russia are widely expected to lose some market share to U.S. shale, however, they are anticipated to help their economies as a rise in crude prices would generate more revenues.
Since the shale revolution, the U.S.'s crude production rose from 5 million barrels per day (mbpd) to 8.77 mbpd last year.
The country's crude output is expected to average 10 mbpd next year, according to the Energy Information Administration.
