Kemp: OPEC Is Winning Its Battle With US Shale


John Kemp is a Reuters market analyst. The views expressed are his own

LONDON, March 10 (Reuters) - U.S. shale producers are falling behind in the Red Queen's Race as the downturn in drilling means that new oil production is failing offset falling output from existing wells.

The famous race is named after the scene from Lewis Carroll's novel "Through the Looking-Glass", in which the Red Queen warns Alice: "It takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run twice as fast."

The race is a metaphor for the relationship between increased oil production from newly drilled wells on the one hand and declining output from old wells on the other.

The net result is that the downturn in drilling is threatening to cut output for the first time since the start of the shale revolution.

Other forms of oil production, notably from offshore fields in the Gulf of Mexico, will continue to increase in the next few months. But in the shale sector, the Organization of the Petroleum Exporting Countries (OPEC) has won its battle with U.S. shale producers and forced output growth to a standstill.

By refusing to cut its own output in November and allowing prices to fall sharply, OPEC has attempted to force shale producers to curb their rapidly swelling output.


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TC | Mar. 13, 2015
From Mr. Kemps doom and gloom piece we are to ascertain that making less money per barrel of oil sold is not spread evenly across the board to every oil producing area of the world, but only affects the American. I think that is a silly notion at best. First the American economy is not based almost entirely on crude oil prices, as it is with the OPEC members. This price war being waged by OPECs refusal to cut production, will cut deeply into their economy. Though their pockets are quite deep, their money supply is not finite. When that money is used to support the socio economic structure as it does on the member nations, the threat of another Arab spring is not what the leadership of the Middle East will be willing to risk. Another assumption Mr. Kemp misses on is that success is only measured by unbridled growth in production. Why is that the only benchmark of success? The laws of supply and demand are very obvious, as the market is clearly showing. In spite of the downside of the lower crude oil prices, there is a very real upside. It is giving the industry an opportunity to purge itself. It is giving the boom towns a chance to build their infrastructure to accommodate the next upswing in the industry. If you have worked in any of the shale play areas, you would know what I speak of. Lastly, Mr. Kemp does not address the most important aspect of this Americans vs the OPEC oil wars thing. Just looking down his nose and no further, he is vastly underestimating the heart of the American Oil Industry and the people who make it great. We are a tough and resilient bunch and it will take allot more than this pricing issue to defeat the American Shale Producers! Mr. Kemp, your narrow and negative view of the American Oil industry may play well with the others, I dont know. But I do know this. If you bet against us, you are betting against the odds. Americans pioneered the industry, are in the forefront of nearly all technological advances and sit atop the biggest reserve of oil in the world. I would hardly call that a losing situation.

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