OPEC's Barkindo: Shale producers are concerned that their slowdown is becoming a 'fast deceleration'

Key Points
  • U.S. oil rig count dropped by 2% at the end of October to 700, the lowest in two and a half years.
  • The industry is facing capital retreat as investors pull away from drilling companies, unwilling to spend more money on unprofitable growth.
  • OPEC will determine its forward trajectory at its Vienna meeting on December 5, where it may extend its oil production cuts or choose to deepen them.
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ABU DHABI, United Arab Emirates — OPEC Secretary General Mohammed Barkindo isn't worried about booming U.S. shale production pushing the oil price down despite a difficult year for the 14-member crude producing organization, which has struggled to keep prices from falling in a low demand environment.

Asked about the disruptive impact of U.S. shale on the energy market, and whether the abundant commodity could torpedo OPEC's efforts to boost prices into the new year, Barkindo cited an impending slowdown in shale — and suggested the most concerned party out of anyone should be shale producers themselves.

"Here in ADIPEC, talking to a number of producers, especially in the shale basins, there is a growing concern by themselves that the slowdown is almost graduating into a fast deceleration," Barkindo told CNBC's Steve Sedgwick at the annual Abu Dhabi International Petroleum Exhibition & Conference (ADIPEC).

"And the numbers are starting to show it. They are the operators, they are the ones investing, and they are telling us that we are probably more optimistic than they are considering the variety of headwind challenges they are facing."

Shale oil, the commodity that catapulted the U.S. to becoming the world's top energy producer last year and that's threatened the level of influence OPEC heavyweights have over the market, is indeed set for a slowdown in 2020, recent figures show.

U.S. oil rig count dropped by 2% at the end of October to 700, the lowest in two and a half years, according to oil services company Baker Hughes. The industry is facing capital retreat as investors pull away from drilling companies, unwilling to spend more money on unprofitable growth.

A recent report by IHS Markit forecasts total U.S. production growth to fall to 440,000 barrels per day (bpd) in 2020 and broadly flatten by 2021 — down from a global record of 2 million bpd annual growth in 2018.

A pumpjack operates above an oil well at night in the Bakken Formation on the outskirts of Williston, North Dakota, U.S., on Thursday, March 8, 2018. 
Bloomberg | Bloomberg | Getty Images

West Texas Intermediate has hovered around $55 a barrel — and international benchmark Brent crude between roughly $57 and $65 per barrel — for months. This is despite millions of barrels of production essentially wiped off the market from major producers Venezuela and Iran, serious geopolitical tensions in the Persian Gulf, and the September attacks on critical oil infrastructure in Saudi Arabia. Rather than spiking, Brent is down nearly 11% year-to-date.

On this point, the OPEC secretary general acknowledged the current market challenges, but maintained his usual composed optimism.

"We are not operating in a normal world. We have new complexities emerging on a continuous basis, and the world requires and needs OPEC and non-OPEC to continue to work together to weather the storms in order to maintain stability on a sustainable basis," he said.

In June, the organization and its non-OPEC partners, led by Russia, agreed to carry on production cuts of 1.2 million barrels a day until March of 2020 in order to keep a floor under depressed prices. The big question now, ahead of OPEC's meeting in Vienna on December 5 and 6, is whether the producers will agree to simply extend the cuts further or actually deepen them.

Barkindo said that was yet to be determined, but with the OPEC meeting only a few weeks away, such enduring unpredictability may be the most significant indicator of just how unclear the road ahead is for OPEC. Not only is there U.S. shale to consider — there's also the production levels of other non-OPEC members, the outcome of the U.S.-China trade war and those ongoing talks, and the health of the global economy as a whole.

"It is very premature at the moment, despite the fact that we're just weeks away from the conference," Barkindo told CNBC. "We have five technical meetings, very important meetings that we look at all these issues, review the current situation, not only with supply and demand, but other factors that are emerging that are outside our control, and it is with the combination of all this that we guide the conference on the 5th and 6th."

"If we are just patient, we will welcome you to Vienna as usual … and we are confident that we are going to have a successful conference."