U.S. shale oil production rocking OPEC's world

As if you need another reminder about how the explosion in U.S. shale oil and gas production is rocking OPEC's world, you only have to go as far as the International Energy Agency’s most recent report. While OPEC production is tanking, U.S. oil production is the only thing stopping the oil market from going into another "super-spike." The IEA says that U.S. oil output is the "defining feature of tomorrow's market" and could test the producer group's share of the global oil market.

Readers of the Energy Report of course are already well aware of OPEC's problems.  For years in countless reports I have told you that U.S. oil production is at a historic turning point in not only the global energy markets but perhaps the history of man as well. I spoke about how the increase in oil production and our abundance of natural gas meant that we were entering the end of the era of high gas and oil prices.  I even wrote a tongue in cheek obituary in a report "RIP OPEC." No others are writing of OPEC's demise. Of course OPEC will still be a force in the global oil market but their ability to control things like they did before will be long gone.   

Of course along the way there were doubters. Some could not grasp how the U.S. could actually be energy independent. It was almost the same type of disbelief that I saw when I first started talking about the coming major bull market in energy I predicted in 1999. Yet now, with the explosive rise of North American oil supplies, OPEC will either have to adapt or die. As for oil, now and since the beginning of time, prices cycle. Then when they get high enough better mousetraps are found and the demand mix changes.

In the global oil market it is share and market share alike. OPEC better play nice or they may continue to lose their piece of the global oil market pie. The IEA says that "The producer group ineluctably faces the test of having to rein in supply and accommodate rising volumes of shale oil – unless falling prices curb shale oil production first.” The IEA said that just last month non‐OPEC supplies rose by whopping 570,000 barrels per day in July to 54.9 million barrels a day with 40% of those gains coming in North America.

OPEC on the other hand is struggling to increase production. With turmoil in many OPEC counties OPEC production is failing to match surges in Canada and the United States. Iraq, Libya, Nigeria and Venezuela are just some of the names that are struggling to deliver. Last month OPEC oil production fell by 165,000 barrels a day to 30.41 million barrels per day.  At the same time the International Energy Agency marveled at the huge increase in global refining capacity especially here in the U.S. that after a summer of maintenance and upgrade nightmares are now producing product at near record pace. This is leading to a surge in U.S. gasoline supply bringing supply to levels not seen in almost a quarter century. The mantra to build new refineries and add capacity has been heeded leading to an abundance of global supply.

On top of that, spare production capacity is rising as well offering a buffer to potential supply disruptions. That should start to reduce the never ending risk premium that has plagued the market price of oil for decades.  The shale gas boom is evident in natural ga,s but did we finally hit the bottom? Nat gas rebounded after a bearish report but it was not as bearish as first thought due to a "reclassification" by the Energy Information Administration.

The EIA reported "Working gas in storage was 2,941 Bcf as of Friday, August 2, 2013, according to EIA estimates. This represents a net increase of 96 Bcf from the previous week. Stocks were 297 Bcf less than last year at this time and 20 Bcf above the 5-year average of 2,921 Bcf. In the East Region, stocks were 105 Bcf below the 5-year average following net injections of 58 Bcf. Stocks in the Producing Region were 76 Bcf above the 5-year average of 973 Bcf after a net injection of 15 Bcf. Stocks in the West Region were 49 Bcf above the 5-year average after a net addition of 23 Bcf. At 2,941 Bcf, total working gas is within the 5-year historical range."

Yet it was the “Reclassifications from base gas to working gas resulted in increasing working gas stocks approximately 14 Bcf for the week ending August 2, 2013, in the West Region. These reclassifications had the effect of increasing the implied net change from 9 Bcf to 23 Bcf in the West region, and from 82 Bcf to 96 Bcf in the Lower 48 states for the week ending August 2, 2013."

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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