OPEC’s Oil Pricing Ability is Diminishing

OPEC’s glory days of steering global oil prices may be at an end.  U.S. shale oil will replace the Organization of the Petroleum Exporting Countries as the first-mover “swing producer,” according to a Goldman Sachs report from the weekend—meaning OPEC is losing its power to set global prices for crude.

Saudi Arabia, the world’s largest oil exporter, no longer has “the ability to push prices lower than the production costs of U.S. shale” because any cuts from the kingdom would “accommodate the further expansion of U.S. shale, as well as reduce Saudi profits,” Goldman said.

The shift in pricing power became apparent to Goldman when U.S. shale’s spare capacity, at around 5 million barrels per day, exceeded Saudi Arabia’s spare capacity of 1.5 million. Spare capacity refers to the amount of crude a country is able to produce in 30 days in case of an emergency.


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