The American Interest
Analysis by Walter Russell Mead & Staff
OPEC Is Cracking…

frackart

…and it’s all thanks to fracking. Members of the Organization of the Petroleum Exporting Countries are meeting Friday to discuss cutting production in response to the new US addition to the global oil market. But delegates have already hinted that the asymmetric impact of the shale revolution on OPEC’s member countries has weakened the bloc’s resolve and will mean no agreement on curbing supply.

That’s because US shale oil is pitting African members against Arab members. The new American oil bounty is of the light, sweet crude variety. It’s higher quality than the heavy crude produced by Gulf OPEC members. But countries like Nigeria, Algeria, and Angola have typically exported sweet crude to the US, and the shale boom is hitting them hardest. Exports from those African members dropped 41 percent from 2011 to 2012.

The countries hit hardest by this new supply source also have the least room to cut production. Their regimes need consistently high exports and oil prices to stay solvent and in power. If OPEC doesn’t cut production, the price of oil is going to drop. That’s going to hurt Venezuela and especially Iran, which is already reeling from Western sanctions on its exports.

Americans are, however, unlikely to be raising money to send to distressed OPEC countries anytime soon. As an aspiring monopoly cartel, OPEC is exactly the kind of rent-seeking organization the world needs to abolish. One of the many positive consequences of the new energy situation is that OPEC is weakening.

[Oil rig image courtesy of Shutterstock]

Published on May 29, 2013 8:15 am
  • http://www.facebook.com/people/Luke-Lea/579129865 Luke Lea

    Opec is cracking? Well, good, though I understand they may depend on at least $70 oil, which is where fracking breaks even.

  • bigfire

    The thing with Venezuela crude is that it’s some of the heaviest on earth that can only be reasonably refined for a profit at American refinery. They’re kind of close to their biggest customer, and their biggest customer happens to have the available technology and capability to process the crude.

    With the new fracking oil and gas that’s rated at light sweet which is cheaper to process at home, it puts a downward pressure on their oil. Never mind that 12 years of Hugo Chavez have ensure that no one in their right mind would ever invest in hardware in Venezuela (least they get nationalized) means that both their crude extraction and refinery capacity are lowered.

    This is not the same issue as discussed in the blog post about the African sweet light crude, whose former destination were United State.

  • Corlyss

    Any word on the refinery picture in the US?

  • juninhobaiano

    For those who want to drag the US into another Mideast war in Syria, forget about it! America doesn’t need to thanks to this wonderful piece of news!