US Oil Output Hike: What It Means for Gulf Producers
It's been heralded as a game-changer for the global oil industry: the boom of shale oil in the United States, and with it the real prospects of ramping up domestic energy production and reducing imports. But it also raises serious questions about where it leaves Gulf oil producers.
Analysts project the U.S. oil industry could pump as much as 14 percent more oil this year alone, partly due to improving infrastructure. Oil imports on the other hand are expected to fall to their lowest level in more than quarter of a century next year; figures published by the Energy Information Agency (EIA) in its "Short Term Energy Outlook" on Wednesday show.
The International Energy Agency (IEA) already said in its November report that the United States could surpass Saudi Arabia as the world's leading oil producer by 2020.
"The surge in U.S. shale oil production is one of the most important developments on the supply side over the last 40 years," Eugen Weinberg, Head of Commodity Research at Commerzbank, told CNBC.
The path towards self-sufficiency, and a move away from controversial security externalities such as the Arab Spring, has been in the making for decades. Nearly every U.S. administration in recent times has spoken about the dangers of relying on foreign oil, and expressed a desire to change that. In 1974, as the country was shaken by the embargo in reaction to the Arab-Israeli War of 1973, then President Richard Nixon promised to "lay the foundation for our future capacity to meet America's energy needs from America's own resources".
Today, the relevance of OPEC is open to debate. It's been a bumpy ride, marked by infighting and only symbolic rhetoric of quota adherence. And U.S. energy independence poses an additional threat to the hegemony of the cartel.
"For the last two years OPEC has stopped working as a functioning body due to the war on Libya, and then the sanctions on Iran. It will therefore be an internal challenge for OPEC to adjust to the changing flows that will come with the new U.S. crude oil," Olivier Jakob, Managing Director at Petromatrix, explained to CNBC.
However, the IEA was quick to point out that OPEC's share of global production would increase to 50 percent in 2035 from currently 42 percent. Production juggernaut Saudi Arabia exported 7.278 million barrels per day (bpd) in November, according to the Joint Organisations Data Initiative (JODI). Those numbers are critical to fuel world growth.
"For the time being, the rising demand elsewhere and the ability of OPEC to cut production still leaves them with enough power," Weinberg added.
Regardless of how significant a reduction in imports is achieved, experts tell CNBC, total insulation is unrealistic with a converging global economy and the way crude is priced. China may have become the largest consumer of Gulf oil, and may contribute more to regional security by extension, but U.S. interests are still aplenty.
With almost no exception, the Middle East is dominated by conflict, instability or the prospect thereof.
The rise in US oil production (and declining consumption) can further dent OPEC's already waning control over oil prices. Meanwhile the evolving variable of energy security as a factor in U.S. foreign policy may turn out to have the most profound impact on the political fate of the region, and inevitably oil prices, yet.