OPEC, US shale producers see mutual benefit of balanced crude supply: Reuters

US shale
Representatives from major US shale oil producing companies met with OPEC at least twice this year and are set to meet with the cartel in Vienna next week.  Continental Resources photo.

Representatives from major US shale oil producing companies met with OPEC at least twice this year and are set to meet with the cartel in Vienna next week.  Continental Resources photo.

US shale billionaire Harold Hamm to meet with OPEC ministers next week

US shale producers and OPEC producers see the importance of keeping the global crude market in balance.  The oil behemoths recognize the recent rise in oil prices could cut into the demand for fossil fuels at a time when electrification is becoming more mainstream.

“We’re getting to a point where a continued rise in the oil price is going to cause major problems for the global economy,” Amy Meyers Jaffe, director of the program on energy security and climate change at the Council on Foreign Relations told Reuters.

“There are bigger issues at hand besides output that OPEC and shale producers care about”, said Jaffe.

Reuters reports that representatives from US shale producers and OPEC met at least twice this year and are set to meet again in Vienna between June 21-22.

The executives from three US shale companies will not be part of the OPEC supply discussions, but will meet with Saudi Arabia’s Energy Minister Khalid al-Falih and other OPEC ministers while OPEC is in session.

Harold Hamm of Continental Resources, Hess Corp CEO John Hess and Pioneer Natural Resources Executive Scott Sheffield will address OPEC ministers next week.  None of the major oil company executives offered comments to Reuters.

Heidi Heitkamp, Democratic Senator from North Dakota said “I wouldn’t take dialogue and discussion as any kind of collaboration. We’re all talking about what does world demand look like for oil”.

Heitcamp pushed the Obama administration to lift the US crude export ban in 2015.  Since then, nearly 2 million barrels per day (b/d) of US crude has been shipped to India, China and other markets that have been historically dominated by OPEC.

This shift in the market has forced the cartel to be more conciliatory with its American rivals.

During the OPEC meeting, the cartel is scheduled to discuss cutting back on its supply cuts to keep the global supply of crude in balance.  At the same time, Continental head, Harold Hamm, is encouraging his fellow US shale producers to focus their efforts on profitability, rather than unbridled production.

Rob Thummel, portfolio manager of Tortoise Energy Independence Fund (NDP.N), holder of Pioneer and other US producers’ shares told Reuters “US oil and gas producers need stable oil prices to be successful, not necessarily higher oil prices”.

US antitrust law prohibits US shale producers from coordinating their output, making their efforts to curb market volatility with OPEC difficult.

Some US shale executives, including Mark Papa of Centennial Resource Development and Ryan Lance, CEO of ConocoPhillips, had originally been scheduled to be part of the Vienna meetings but have since backed out.

According to a Reuters source, Ryan Lance was set to speak on a panel with a number of Persian Gulf producers, but has opted out of the event on concerns that he would be seen as the US representative at such a forum.

Neither ConocoPhillips nor Papa offered a comment to Reuters.

At the meeting, OPEC ministers are expected to discuss with the Americans rising Permian Basin crude output, which amounts to over 3 million b/d.

“There is a tsunami of oil coming from the Permian,” Pete Bowden, global head of energy investment banking at Jefferies told Reuters. “That is a game-changer, not just for the industry domestically, but for international oil and gas supply/demand dynamics.”

This rising US shale production is a greater concern to OPEC than at any other time in history.

“We expect that they (US shale producers) remain independent and do what’s in the best interest of their country,” Senator Heitkamp told Reuters. “We’re not going to join OPEC, and we’re going to be fiercely competing with them.”

Behind the competition, however, both US shale producers and OPEC see electrification on the horizon.

“Consumers will move to electric cars if the oil price spikes,” CFR’s Jaffe said.

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