TEHRAN Nov 27 (Shana)--Shale oil producers have waged a war in world oil markets whose objective is to gain more share in the market. To this end, American companies have laid a trap by resorting to dumping, a situation that OPEC members should avoid to be caught in.
While OPEC’s 166th Ministerial Meeting is set to be held on November 27 in Vienna, Rich Miller from Bloomberg has said that the new era of cheap oil will be followed by supremacy of U.S in geopolitics. He portrays an outlook in which some states will be weaker and some others will become more powerful.
Ed Morris head of international research department of City Group in New York has also said that new era of low oil prices is looming in the horizon which is the result of shale revolution in the U.S. He continued there is no doubt that these changes will be followed by crucial geopolitical developments.
Claire Milhench from Reuters is of the opinion that cutting oil production by more than 500 thousand barrels per day by OPEC is the only way to be able to reverse the downward trend of prices and restore previous status. He continues otherwise oil prices will fall further hitting 60 dollars.
Eyes are now fixed on OPEC’s decision and Iran’s position as one of key members of the organization.
The importance of Iran’s view drives from the fact that even though Iran’s current production is estimated at about 3 million barrels per day, but in case of lifting sanctions, the country is able to raise its oil production to 4.2 million barrels at once.
In other words, Iran is able to flow 1.2 million barrels of oil to the market immediately after lifting sanctions.
In the meantime, falling prices to 70 dollars per barrel, which shale oil producers pursue in the market, not only will not push OPEC to a corner in the market but will remove a great part of shale oil from the market against their will.  
According to executive vice president of HIS, Yergin, in 2015 production of about 80 percent of shale oil will be economical based on considering the price of each barrel of oil 50 to 69 dollars.
Therefore, maintaining oil prices at 70 dollars will force shale oil producers to shut down equivalent of 700 thousand barrels of oil production per day and if prices stay at 60 dollars they will be forced to abandon 2.5 million barrels out of 3.5 million barrels of oil per day they are producing now. Of course this amount is apart from falling oil production from deep wells in onshore and offshore sectors.
Now the question is that despite these economic realities, why shale oil producers insist on continuing oil production far from the low level of prices and why they think OPEC should cut production!
The answer is that shale oil producers plan to persuade conventional oil producers notably OPEC and Russia to abandon part of their share in the market for the benefit of shale oil producers by pushing oil prices toward risky levels of less than 60 to 70 dollars. It is clear that cutting oil production by OPEC would then push prices upward and they will reach the level that is regarded as a red-line for shale oil producers.
The curve of movement of oil prices in recent weeks proves this argument. In fact, whenever the prices near the red-line as the starting point of crisis for shale oil producers it starts moving upward and whenever it distances from the limit we are witnessing downward trend of prices.
While the market has hit an equilibrium, too much speculations by media about likely falling prices to below 70 and simultaneously requesting OPEC to cut production should seek an especial objective.  
In these circumstances, taking any step back will embolden shale oil producers to take a step forward. In this way, shale oil producers will raise their revenues from new markets they capture and will embark on new investments to assume more share in the oil market and make up for short term losses due to falling prices.
In fact, shale oil producers have waged a war to capture part of the share of OPEC in oil market; a move that OPEC should avoid and try to save itself from the dumping trap set by American companies.
Sharp fall in oil prices not only will force shale oil producers to leave the market as soon as possible but also will help OPEC to avoid great losses in the long-term.
We should remember that Non-OPEC oil producing countries should raise their investment 300 billion dollars annually to increase their production capacity and make up for falling oil production between 2015 and 2020 while OPEC needs just 40 billion dollars in investment annually in upstream sector during the period.
Thus, it could be concluded that shale oil will not be a threat for OPEC’s oil production and its markets as long as OPEC acts wisely.

By SHANA

 

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