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As OPEC Urges U.S. Shale to Cap Supply, Oil Demand Peak Predicted for 2030

OPEC Secretary-General Mohammed Barkindo urged North American shale oil producers to help stabilize oil prices by curbing their production, as reported by Reuters. The OPEC countries have tried to stem the significant drop in oil prices by negotiating cuts in production, a goal that is not supported by all oil-producing nations.

The dramatic decline in oil prices began in the second half of 2014. This price fall has put pressure on North American shale drillers, who have had to increase their efficiency to counteract the falling prices. Only those drillers who have been able to significantly reduce their costs have survived in last three years. Producers who have adapted to new market conditions and are able to benefit from prices of about $45 a barrel or lower currently pose a threat to the OPEC nations’ revenues.

The crucial issue for oil producers is maintaining stable prices and market share. An oil price of below $40 a barrel is untenable for OPEC over the long term, due to the dependence of individual cartel member states on oil sales revenue. The effort to reduce oil output among OPEC nations by the end of 2016 has resulted in a gradual increase in prices of over $55 per barrel. While a number of OPEC nations restricted their mining last year, U.S. producers increased their mining by 10 percent.

Although OPEC nations are likely dissatisfied over the continued low price of oil, it’s a net benefit for consumers. Consumers have been paying less at the pump for some time now (excluding a brief bump in prices due to refinery disruption caused by Hurricane Harvey). Some subsets of consumers may feel a financial pinch from the oil slowdown – such as those who own stock in oil and gas companies or who work in the oil and gas sector – but lower gas prices for everyone are a positive.

Along with decreasing oil prices, demand is likely to peak by 2030 with the acceleration of electric car sales, The Guardian reports. France and Britain have announced that they plan to ban the sale of new gasoline and diesel-powered cars by 2040. The increasing availability of electric cars and increased efficiency of gas and hybrid engines are expected to cut gasoline demand significantly. According to the chief executive of Royal Dutch Shell, Ben van Beurden, only the cheapest and the most productive oil producers will remain competitive. If the most optimistic scenario occurs, Shell’s demand will peak in the late 2020s. However, some other analysts believe that the transition period will be much longer and believe that demand for oil will grow at a slower pace until the 2040s.

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