OPEC versus Shales Could Drive Oil Prices Further Down

Oil prices might have halted their earlier slide below $80 a barrel this week but analysts believe the dog fight between major oil producers over reducing the supply of oil could lead to lower prices yet.

Oil markets have seen prices fall sharply over the last four months, as faltering global growth in major economies has cut demand at a time of over-supply. On Thursday, WTI crude fell below $80 a barrel for the first time since June 2012 before recovering to 82.88 on Friday.

The global oil benchmark Brent crude climbed by almost a dollar to near $86 a barrel on Friday morning — up from a near four-year low at below $83 on Thursday — after more positive economic data from the U.S. Prices have fallen over 20 percent since June, however, when turmoil in Iraq lifted prices to $116 a barrel.

“The bearishness in the global oil market is all being driven by the U.S. shale revolution,” Seth Kleinman, head of Global Energy Strategy at Citi, told CNBC. “It’s being driven by this massive infrastructure build out that we’ve seen over the last few years and it’s taken the market a lot more time to catch up and act more rationally.”

The U.S. shale gas industry has boomed over the last decade with shale gas and oil producers proliferating and production surging in the country, becoming a competitor for major oil-exporting countries such as Saudi Arabia.

The drop in oil prices has led to expectations that the Organization of the Petroleum Exporting Countries (OPEC) could cut output in an attempt to shore up prices, but OPEC members Saudi Arabia and Kuwait played down such a move at the start of the week. That could pile pressure on the U.S. shale industry and its producers to cut supply themselves if and when prices decline further.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza