Oil is the lifeblood of the GCC economies, but the industry has been threatened by the rise of shale gas in the US. What’s the outlook for the future?
OPEC, enjoying oil at just over $100 a barrel, looks set to keep its output policy on a steady course for 2013 — leaving clear room for booming US shale supplies.
“Let me tell you this, this is the best environment for the market. Supplies are plentiful, demand is great, balanced — inventories are balanced,” influential Saudi Oil Minister Ali Al Naimi said last month.
And while the price of oil by historical standards is expensive, it is well below the $125 that rang alarms in major consumer countries last year.
“The current price is fair and reasonable,” UAE Oil Minister Suhail Bin Mohammed Al Mazroui told Reuters last month.
“It’s been sustained for some time without impacting the economics of the producers and the countries that are buying the crude. It also encourages investment in future supply,” said Mazroui, attending his first meeting of OPEC.
Triple-digit oil has also encouraged development of US shale oil in North Dakota and Texas, some of which is the most costly in the world to produce and competes with OPEC crude of similar quality from Nigeria and Algeria, rather than heavier Saudi output.
Innovative use of hydraulic fracturing, or “fracking,” has unlocked new resources of oil and gas trapped in shale rock, putting the United States in line to become the world’s largest oil producer by 2017, overtaking Saudi Arabia.
That is not worrisome for Riyadh, especially when it comes to charting policy for the second half of 2013.
“This will be a straightforward meeting leading to a rollover (of the existing output target),” a Gulf OPEC delegate told Reuters. “Shale isn’t an immediate threat or concern for Saudi Arabia.”
And the kingdom — holder of most spare capacity in the Organisation of the Petroleum Exporting Countries — shows no sign of opening the taps to bring down prices and curtail that output by making it uneconomic.
Some within OPEC are concerned about the potential for both slow global growth and a dramatic rise in US shale oil to send prices tumbling.
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