Dan K. Eberhart, CEO of Canary LLC, an oilfield services company based in Denver, Colorado, has commented on OPEC’s decision to continue current production levels of 30 million barrels a day after the cartel's ministers met in Vienna on Nov. 27. OPEC's Arab Gulf State members, led by Saudi Arabia, disregarded pleas from the organization’s more penurious members to stabilize dropping oil prices by reducing oil production.
"American shale oil producers will definitely feel the far-reaching effects of OPEC's decision to keep its oil output at robust levels," Eberhart said.
The US shale energy boom has propelled US oil production to its highest levels in decades, dramatically decreasing America's demand for imports.
"The Arab Gulf State members' refusal to yield represents economic hardships for cash-strapped, oil-dependent countries that rely on higher oil prices for government revenue," Eberhart said. "The likelihood of a continued free fall in oil prices will make it more difficult for US shale oil producers to fund new drilling projects, to pursue exploration, and, in some cases, to simply continue operations."
Slowing economies in Europe and China have cut global demand even further, resulting in significant global oversupply – and steadily dropping prices. Eberhart said that oil states, such as Nigeria and Venezuela, will likely be forced to devalue their currencies as oil revenue continues to falter.
"By holding fast to current production levels, Saudi Arabia is essentially saying that we need to put a wet blanket on American shale," Eberhart said. "American shale plays with higher production costs, such as the Bakken in North Dakota, will be affected more. Weaker or over-leveraged American oilfield companies most likely will struggle – and may even be forced to close."
Historically, OPEC has taken the lead in stabilizing the global market by adjusting production levels as necessary, but Arab Gulf State members with the resources to ride out a period of low oil prices are capitalizing on the opportunity to dampen the American shale boom.
"This decision did not come as a big surprise,” Eberhart said. “OPEC has been indicating that this would be the policy for a few months: to keep production high. The US ban on exporting its highly sought-after, light, low-sulfur crude oil is not helping matters. Exporting US crude would add more supply to the world, which would help stabilize the price with constant demand."
Canary LLC is an independent wellhead service company that operates in every major American shale play, including in North Dakota, Ohio, and Texas.