OPEC Underestimated Resiliency of U.S. Oil Output: Yergin

OPEC was mistaken in thinking that U.S. shale oil production would be unprofitable once crude prices slipped below $90 a barrel, according to Pulitzer Prize-winning author Daniel Yergin.

The Organization of Petroleum Exporting Countries will have a tough time coming to an agreement about production when ministers gather Nov. 27 in Vienna, said the vice-chairman of IHS Inc., an Englewood, Colorado-based consultant. Oil prices plunged into a bear market last month, the result of a surge in shale drilling that lifted U.S. output to a three-decade high, as OPEC output rose and there were increasing signs of slower demand growth.

“One of the big surprises for many is how resilient the shale oil sector is in the United States because of technology, efficiency,” Yergin said in an interview today after speaking at the 10th Annual Columbia University Energy Symposium in New York. “The speed with which it’s going up the learning curve compensates for the speed with which they are going down the price curve.”

U.S. crude output rose to 9.06 million barrels a day in the seven days ended Nov. 7, the highest level in weekly data that started in 1983, according to the Energy Department’s statistical arm. U.S. production will rise to an average 8.57 million barrels a day this year and 9.42 million in 2015, the most since 1970, up from 7.46 million last year, the EIA said in its Short-Term Energy Outlook on Nov. 12.

About 80 percent of shale “oil production coming into the system in 2015 would be economic between $50 and $69 a barrel,” Yergin said. “I think there was an assumption among OPEC countries and, you know, Europeans and others, kind of below $90 the shale gas, the shale oil, would not be viable.”

Tumbling Prices

Brent touched a four-year low of $76.76 a barrel Nov. 14 on the ICE Futures Europe exchange. The benchmark for more than half the world’s oil advanced $1.03 today to close at $80.36, leaving it down 27 percent this year. West Texas Intermediate on the New York Mercantile Exchange is down 22 percent in 2014.

“People will focus in on the most productive plays,” Yergin said. “They’ll kind of put aside the peripheries, they’ll put aside new land acquisition and really focus on the productivity of their wells, and people know a lot more about producing than they knew a few years ago.”

OPEC pumped 30.97 million barrels a day in October, exceeding its collective output target of 30 million barrels a day for a fifth straight month, according to a Bloomberg survey.

“I think this highlights the fact that OPEC is an organization of countries with very different positions, very different economic and political situations,” Yergin said. The members are “only united by one thing, they all export oil. OPEC is an association of countries of whom a few members are really key.”

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