It took a global pandemic for OPEC to slam door on US shale

FE Team | Published: December 02, 2020 20:34:22

OPEC's oil ministers have a few challenges to consider at their next crucial summit, but for the first time in years the shale boom won't be at the top of the list, according to World Oil.
A devastating global pandemic and a reckoning with Wall Street appear to have broken the resolve of the shale wildcatters who turned the US into the world's biggest oil producer. Years of breakneck growth, at the expense of crude kingpins in the Middle East and Russia, have come to an end. If there was ever any doubt, it's now abundantly clear who has the upper hand in the global oil market.
"In the future, certainly we believe OPEC will be the swing producer - really, totally in control of oil prices," said Bill Thomas, chief executive officer of EOG Resources Inc., the biggest independent shale producer by market value. "We don't want to put OPEC in a situation where they feel threatened, like we're taking market share while they're propping up oil prices," he said.
The shale industry's prudence, also echoed by the CEOs of Pioneer Natural Resources Co. and Occidental Petroleum Corp., means that production will probably flatten after a steep plunge this year. US oil output will end 2021 close to 11 million barrels a day, about the same as it is now, according to forecasters IHS Markit, Rystad Energy, Enverus and the US Energy Information Administration.
"I see no more growth until 2022, 2023, and it will be very, very light in regard to the U.S. shale industry ever growing again," said Pioneer CEO Scott Sheffield, who'll run the fourth-largest shale operation in the country after his company completes the takeover of Parsley Energy Inc. That will surely come as a relief to OPEC and its allies.
At the start of 2020, the group's efforts to control prices were facing increasing difficulties. The breakthroughs in horizontal drilling and fracking that ushered in the shale revolution made it look as though US production growth might never end. Output surpassed 13 million barrels a day for the first time in February.
Then Covid-19 hit, people around the world stopped driving and flying, and the oil market crashed. President Donald Trump brokered a historic deal with OPEC in April to remove almost a 10th of global production from the market. He said the US contribution would come in the form of market-driven cuts.