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Are U.S. Shale Oil Producers And OPEC Heading Toward An Agreement?

By Ellen R. Wald, Ph.D.CommoditiesMar 07, 2018 05:50AM ET
www.investing.com/analysis/are-us-shale-oil-producers-and-opec-heading-toward-an-agreement-200296227
Are U.S. Shale Oil Producers And OPEC Heading Toward An Agreement?
By Ellen R. Wald, Ph.D.   |  Mar 07, 2018 05:50AM ET
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The biggest players in energy are descending on Houston, TX this week for the annual CERAWeek energy conference hosted by IHS Markit which began on Monday. One event drawing significant attention was the dinner meeting on Monday night between some OPEC members and the CEOs of a few key American shale oil companies. The first such dinner took place last year at the same conference and OPEC has continued to keep in contact with those it sees as key players, including leaders in the shale industry and investors.

Although these meetings receive a great deal of attention from the press, market watchers should understand that under no circumstances would any American oil company ever enter into any agreement with OPEC. Even the pretense of holding discussions for any kind of joint activities would draw the attention of the U.S. Federal Trade Commission and the Department of Justice for a potential violation of anti-trust laws.

Though OPEC is partnering with non-OPEC oil producing countries like Russia and Kazakhstan, U.S. companies will not be a part of this. There have been a few times in the past when American oil companies were granted special immunity from anti-trust laws to cooperate with other oil companies, but only for matters vital to U.S. national security. There is no national security interest here for the United States.

If not to collude, what are OPEC and U.S. oil companies discussing with one another? The former CEO of EOG Resources (NYSE:EOG), Mark Papa, told the Wall Street Journal that he planned to tell Mohammed Barkindo, the Secretary General of OPEC, that the position of shale oil companies is not as good as some believe. He reportedly intended to say that, despite the common belief in the market, shale companies are not very capable of ramping of production and sustaining high levels of production. After the dinner, according to Bloomberg, he declined to comment on what was said.

The point of the meeting is not for OPEC and shale to reach a unified conclusion about the market, or even for shale oil producers to “educate” OPEC about their business. (The sophisticated leaders within OPEC are already quite educated on shale.) The point is merely to show the market that they are meeting, enhance speculation and surreptitiously glean an insight or two into the business strategies of other key players.

Remember, the CEOs of Chesapeake (NYSE:CHK), Hess (NYSE:HES), Pioneer Resources (NYSE:PXD), Occidental (NYSE:OXY), Centennial (NASDAQ:CDEV) and others will be just as interested in what their fellow shale CEOs tell OPEC as they are in what OPEC has to say. “Keep your friends close and your [competitors] closer.”

Are U.S. Shale Oil Producers And OPEC Heading Toward An Agreement?
 

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Are U.S. Shale Oil Producers And OPEC Heading Toward An Agreement?

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inderjeet virk
inderjeet virk Mar 07, 2018 10:07AM ET
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shale is producing lot of oil during the glut period ,but when we really need oil in a tight market their production will collapse.
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Anurag Budhe
Anurag Budhe Mar 07, 2018 9:33AM ET
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What is your opinion on crude oil inventory of today?
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Do Deikins
DoRight Mar 07, 2018 8:35AM ET
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Since the US is not the only  location with tight oil, it is always valuable to gain insight into potentials and problems. And it is never wrong to break bread together.  Bon appétit.(ou bon profit?)
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Mar 07, 2018 5:54AM ET
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Good article. Yeah exactly. What are you meeting for if not to collude? They are playing games with each other
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Yogen Dave
Yogen Dave Mar 07, 2018 1:49AM ET
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Ok
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