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OPEC and US Shale tensions ease ahead of get together

Atheer – External Sources

The oil industry’s biggest names gather this week at CERAWeek, the largest energy industry get-together in the Americas, at a time when US shale production is booming, global demand is rising and crude prices are at a sweet spot for both big US producers and OPEC.

According to Reuters, last year’s decision by the OPEC to restrain output has drained the global glut that occupied much of the conversation at 2017’s gathering. With oil prices LCOc1 up about fifteen percent since oil ministers and top executives convened here last year, fears have receded for a slugfest of OPEC vs. US shale.

Rising prices have US shale producers pumping more, sending total US output to an all-time record above ten million barrels per day. This year, the United States could surpass Russia as the world’s largest oil producer.

OPEC, meanwhile, has shown no signs of moving to produce more, with output from members at a ten-month low. Its leaders have even expressed interest in keeping some production curbs in place through 2019.

They have scheduled dinners with shale executives and financiers for the second time in two years, underscoring the maturation of a relationship between big petrostates and a once-upstart industry that weathered OPEC’s best efforts to bury it under a supply glut from 2014 to 2016.

Shale has emerged stronger from that period with the Permian Basin, the largest US oilfield, now producing nearly three million barrels of oil per day, which is triple the 2009 figure.

OPEC says that it wants to encourage moderation by shale companies as well as its own members. Shale firms often use hedges, or financial contracts that lock in a price for future production, to guarantee profits. These contracts protect them should prices slip.

OPEC views shale as a monolith rather than a collection of independent companies and hopes that executives will say they will keep US output at under ten million barrels per day. The organization however also recognises that shale producers would be violating US antitrust law if they agreed to collective pricing or output pacts.

The US Energy Information Administration said on Tuesday it expects domestic oil production to surpass eleven million barrels per day late this year.

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