According to multiple reports from sources such as CNN and Andrew Follett of the Daily Caller News Foundation, the Organization of Petroleum Exporting Countries (OPEC) has asked the U.S. to curtail its oil production. The request came last week as part of OPEC’s monthly report.
According to OPEC, the use of hydraulic fracturing technology, known as fracking, has enhanced American oil production, leading to a sustained period of low oil prices. Current oil prices are hovering just below $50 a barrel, buoyed by talks by Russia and Saudi Arabia that those nations might extend production cuts by an additional nine months, limiting supplies. OPEC has stated that raising oil prices will “require the collective efforts of all oil producers” and should be done “not only for the benefit of the individual countries, but also for the general prosperity of the world economy.” OPEC’s goal is for oil prices to remain between $50 and $60 a barrel.
OPEC’s plea to the U.S. to curtail oil production underscores the new reality that shale production using fracking technology is driving the oil market. In 2015, the U.S. eclipsed Saudi Arabia and Russia as the world’s largest oil producer. According to the U.S. Energy Information Administration, American oil production will surpass 9 million barrels a day in 2017. Whether the public is aware or not, the U.S. now sits alone as the leader in global oil production. Just a decade ago, the U.S. was importing around 60% of its oil. Today, that figure is less than 25%.
“I think [OPEC] are now acutely aware that they don’t have the kind of influence they used to have 10 years ago, and that shale is now the swing producer in the market,” explains Tom Pugh, a commodities economist at Capital Economics.
One of the effects of this shift is that OPEC, led by Saudi Arabia, can no longer control global oil supplies. Oil production from the U.S., Russia, and Iran is simply too abundant. In turn, Saudi Arabia has lost a great deal of market share and influence in the oil marketplace. This loss of influence has caused the Kingdom to run a budget deficit of $140 billion, an amount equal to around 20% of the country’s economy.
“The past decade has been a period of incredible transition in the world’s oil markets, namely due to astonishing breakthroughs in American oil production from fracking technology,” says PACE Executive Director Lance Brown. “This works to the benefit of consumers by increasing supply, placing downward pressure on fuel prices, and ensuring a steady and reliable supply of oil right here at home.”