Shale as World's Swing Producer Signals 'Jagged' Future for Oil

(Bloomberg) -- With OPEC ceding control for the first time since the 1980s, U.S. shale oil has been anointed the world’s new “swing producer” by everyone from ConocoPhillips and Goldman Sachs Group Inc. to former Fed Chairman Alan Greenspan.

But can America’s oil really swing it?

Producers cut billions in spending, idled half the country’s rigs and kept more than 3,000 wells off the market, and it still took five months for U.S. production to start dropping. Analysts and banks say a recovery in production will also prove slower and more difficult than it would be for a single producer like Saudi Arabia.

“When you think of a swing producer, you think of OPEC and you think of spare capacity that can be turned on and off,” said Trisha Curtis, director of oil and gas research at Energy Policy Research Foundation Inc. “U.S. oil can respond, but the response is going to be messy, it’s going to be jagged and it’s not going to happen overnight.”

At the heart of all this is the fact that U.S. oil supply isn’t controlled by a single Saudi Aramco-like entity with a lever on all 9.4 million barrels of daily oil output.

“The traditional market balancer isn’t there,” Daniel Yergin, vice-chairman of energy analyst IHS Inc., said April 14. “People have started to describe the United States as a swing producer. If it is the swing producer,” the recovery is going to be a lot more volatile, he said.

Saudi Arabia boosted production by 658,800 barrels a day to 10.294 million in March, according to data the country submitted to the Organization of Petroleum Exporting Countries.


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Copyright 2016 Bloomberg News.


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