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Hail Shale, OPEC Falls From Grace

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Walter Russell Mead, Via Meadia

A new forecast for 2014 predicts lower prices and lower demand for OPEC oil, despite an increase in overall global demand. It’s not surprising that cheap American shale energy is driving the shift. America’s shale boom is predicted to continue to satisfy an ever larger chunk of global demand in 2014.

The Financial Times writes:

“The producers’ cartel expects demand for its crude to fall 0.3m barrels a day to 29.6m b/d in 2014. That would be the lowest level of demand since 2009, when Opec believes the call on its crude fell to 29.3m b/d during the financial crisis, according to figures in the organisation’s annual report published last week.

As well as reduced demand, Opec members are facing lower prices for their crude oil. The Opec reference basket, which includes the crudes produced across its members, averaged $105.09 a barrel in June. That was a decline of almost $7 from last year.”

American shale has been a double whammy for OPEC. On the one hand, it has cut into OPEC’s market share in the US. American production has also increased the global oil supply, which has caused prices to fall. If OPEC wants prices to stay high, it will need to cut back production—something several of its countries can’t afford to do. Those countries need the revenue from oil production, meaning OPEC will continue to produce and prices will fall. All in all, this is good news for shale, and great news for America.

Via Meadia, 10 July 2013