CERAWeek: U.S. and Wall Street take over OPEC’s role as global swing producer

Fuel Fix ^ | April 20, 2015 | Collin Eaton

[thackney]

Financial markets underpinning the U.S. shale boom have emerged as the world’s de facto regulator of global oil production, taking over from the Saudi Arabia-led cartel that effectively abdicated its decades-old role in November, a top IHS researcher said Monday.

The Organization of the Petroleum Exporting Countries “is not what it used to be; it’s no longer the balancer of the oil market,” said Jim Burkhard, chief researcher of global oil markets for IHS, during a panel on the first day of the week-long IHS Energy CERAWeek conference at the Hilton Americas-Houston.

For a generation, Burkhard said, OPEC could influence the price of oil by raising or squeezing off production from its oil fields. But in November, the group decided to fight for its place in the global market, and announced it wouldn’t cut its oil production to stem the collapsing crude prices.

That made the United States the world’s new “swing producer” – the force that balances the pendulum between global supply and demand. The role would have been impossible before technological advances boosted production from dense shale formations in the United States.

What also became much more important – though it didn’t mean to – was Wall Street, which has pumped billions into the nation’s shale energy boom since 2008.

“It’s not a regulated, concerted authority, or even a concerted intent, but the impact collectively of the U.S. oil industry we believe is the new balancer,” Burkhard said, noting much of the shale boom was funded by outside sources that, on average, ponied up $50 billion a year in debt and equity for the U.S. shale industry in the last half decade.

That’s why the oil markets should pay attention to how the financial world responds to falling oil prices. At the moment, oil companies have plenty of access to capital in debt and equity markets. The difference between this oil collapse and the most recent one in 2008 and 2009, Burkhard said, is that financial industry is in good shape. Credit markets were in crisis at the end of the previous decade.

“There’s a lot of capital available on the sidelines,” he said. Energy equity raises so far in 2015 have exceeded last year’s offering of capital, he said. “That could be a force that leads to a new dynamic between cost and prices. It could perhaps move us to a lower price-cost structure. We could transition into a new cost structure where we do have attractive margins at a lower absolute oil price.”

In an earlier panel, Shaikh Nawaf Al-Sabah, CEO of Kuwait Foreign Petroleum Exploration Company, said he doesn’t believe oil prices will return any time soon and that producers currently raising debt and equity are “whistling past the grave yard.”

[PGalt]

Very interesting. Thanks for posting.

[Boogieman]

Haven't we always been the global swing producer?