U.S. shale oil producers and The Organization of the Petroleum Exporting Countries (OPEC) met for the first time to talk about the future of the oil industry, according to Forbes and to the Anadolu Agency (AA), a Turkish news source. The Secretary General of OPEC, Mohammad Barkindo, stated on July 12 that this meeting “has broken the ice in reaching out to shale producers in the U.S.”
OPEC has traditionally kept its dealings within the sphere of its cartel but has recently broken out of its shell to include other countries, such as Russia, into the mix. The meeting with shale oil producers is somewhat surprising because OPEC and U.S. shale producers have traditionally been seen as direct competitors, especially so when considering the market conditions over the past two years. Any attempt by OPEC to reduce the global supply of oil has been compromised by the surge in production from U.S. shale producers.
“We sat with them and we had a very productive and very useful preliminary meeting with them,” stated Barkindo, according to AA. “We all agreed that we should continue these meetings,” he continued. “At the end of the day, we are all agreed that we belong to the same oil market. We also agreed that we share responsibility in this market,” Barkindo said.
One might speculate that the purpose of these meetings is to try to persuade the shale producers to agree to some sort of potential agreement on oil production levels. Whether any sort of agreement will be developed and followed through on is an entirely different matter. Further, Forbes notes that there isn’t any singular group which comprehensively represents U.S. shale producers. This rather ambiguous statement by Barkindo that OPEC was meeting with shale oil producers inevitably leads to questions about which firms were actually present at that meeting.
He said the meeting was useful and productive. It is believed that the OPEC and the shale industry began talking in March at CERAWeek, an annual energy conference in Houston. Reports are that OPEC seeks further, more serious conversations with U.S. shale producers.
Barkindo’s statements leave much mystery. First, there is no unified entity of U.S. shale producers. Individual corporations operate shale wells in the U.S. Some are small wildcatters, some are giants like Royal Dutch Shell and some are in between. They generally all belong to trade organizations such as API, but these do not set production policy. Harold Hamm, the most prominent personality in U.S. shale and the CEO of Continental Resources CLR +1.74% for 40 years, does not and cannot collude with other producers like EOG Resources EOG +1.56%, ExxonMobil XOM +0.01%, Pioneer Natural Resources PXD +0.34% or a tiny wildcatter. He may wish to collude to decrease production, but U.S. antitrust laws forbid this.
In the past, the U.S. has permitted coordination between oil companies for specific causes , such as supplying allied efforts during World War II and negotiating with OPEC over oil prices in 1973. Even if the U.S. government were to grant an exemption today for shale producers to collude along with OPEC and others (Russia, most prominently), cooperation by the large shale firms alone may not be enough control production or raise the price of oil. U.S. shale production is simply too fragmented with too much production by small firms.