From short-term issues like increased oil production by the United States to longer trends like the rise of renewable energy, OPEC’s efforts to manipulate oil prices could be in vain.
The Shale Boom
In many ways, oil prices that topped $100 a barrel as recently as 2014 may have produced the seeds that are weakening OPEC.
In particular, companies in the United States took advantage of the high prices, learning to produce huge quantities of oil from shale rock in a process called hydraulic fracturing, or fracking. The technique, which involves extracting energy by drilling long horizontal wells and then loosening oil from the rock, has transformed the United States into a so-called swing producer that is able to adjust production rapidly to match changes in the market.
But fracking has required substantial investment, and when oil prices plummeted in 2015 and 2016, output from shale in the United States fell by around 900,000 barrels a day, equivalent to almost 1 percent of the global supply.
In recent months, that has changed. The American shale industry is now an efficient machine that finances the drilling of thousands of new wells with varied sources of capital, including the advance sales of oil, bank and private loans and high-yield bonds.
When prices are down, that money dries up, but when prices tick up around $52 a barrel, activity turns on a dime, according to Roger Diwan, a vice president at IHS Financial Services, which advises investors.
Now, with oil prices near $50 a barrel, OPEC’s biggest worry is a revival of American shale production, presenting the bloc with a thorny problem as it considers its own market moves.
“The higher the price goes, the more shale operators accelerate production, and the more OPEC has to cut,” said Mr. Diwan, who forecast that United States shale operators…