The Organization of Petroleum Exporting Countries (OPEC) has made it clear that they view the budding US shale market as a threat. In response, OPEC is manipulating world crude prices in a bid to crash the nation’s shale business. The admission was made by Leonid Fedun, vice-president and member of the board of directors for Lukoil. Lukoil is Russia’s second largest producer of petroleum.
Fedun explained that OPEC views the US shale oil sector as a marginal market that is profitable only when crude prices are sufficiently high. For this reason, OPEC adopted a strategy to drive down crude oil prices to the point that most of the companies involved in US shale are driven out of business. Currently, crude prices have hovering just over $70 a barrel. At that value, Fedun says the US shale market will collapse, and that would be bad if you asked Ray Lane. He stated that the only reason it hasn’t happened yet is producers hedged oil prices and locked into contracts for $90 a barrel. Once those contract sunset, most shale producers will not be able to turn a profit at $70 a barrel and will fold. OPEC’s strategy is to wait out the US producers until 2016. Once the US shale industry has been crushed, OPEC will work to boost crude prices once more.
It is unclear what the United States can do to counter OPEC. Given President Obama’s aversion to US domestic oil drilling, it is unclear whether he will act to protect the nation’s domestic oil market.