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OPEC Will Be Squeezed by US Shale Until Mid-2020s

Source: Bloomberg 3/11/2019, Location: Europe

OPEC’s loss of market power to what was once its biggest customer will continue until the middle of the next decade as U.S. shale oil thrives.

By 2024, the Organization of Petroleum Exporting Countries’ capacity to pump crude will actually shrink because of declines in Iran and Venezuela, according to the International Energy Agency. As rivals grow, the amount of oil the world needs from the cartel each year won’t recover to pre-2016 levels -- before OPEC started cutting production -- throughout the period.

The report may be sobering reading for OPEC, which has capped its production for the past two years to stave off a global glut that would depress prices. Although its cutbacks have mostly achieved those aims, they’ve also invigorated the shale-oil boom in the U.S., helping the country become the world’s biggest crude producer.

“The second wave of the U.S. shale revolution is coming,” Fatih Birol, the IEA’s executive director said on Monday at the CERAWeek energy conference in Houston. “This will shake up international oil and gas trade flows, with profound implications for geopolitics.”

America’s energy expansion will proceed, accounting for 70 percent of the growth in global production capacity through to 2024, the Paris-based IEA said in its medium-term report. By that time, the nation could be able to export 9 million barrels a day, exceeding the export capabilities of Russia and coming close to those of Saudi Arabia, the agency said.

With U.S. supply growth to be supplemented by Brazil, Norway and Guyana, the IEA substantially raised forecasts for new crude from outside OPEC, by as much as 3.3 million barrels a day by 2024.

As a result, estimates for the oil needed from OPEC’s 14 members were slashed. By 2024, the world will still need less crude from the group than it was pumping before production cuts started. That suggests that OPEC will need to persist with its current output restraints into the next decade, the IEA said.

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