US shale boom could harm OPEC deal, cause price war: Rosneft

US shale “has become and will remain a new global price regulator”

Rosneft, Russia’s largest oil producer told Reuters on Monday that the recovery in US shale production may result in OPEC and non-OPEC members opting to not extend production cuts past June.

In 2014 when oil prices crashed from above $100/barrel and dropped to below $30/barrel in 2015, shale production in the US fell.

Last November, many OPEC members along with non-members including Russia and Mexico agreed to cut back production by 1.8 million b/d for six months in an effort to increase commodity prices.

The plan worked, however, it also encouraged the revival of US shale production.

“It became evident that US shale oil output has become and will remain a new global oil price regulator for the foreseeable future,” Rosneft said in a written response to Reuters.

“There are significant risks the (OPEC-led) deal won’t be extended partially because of the main participants, but also because of the output dynamics in the United States, which will not want to join any deals in the foreseeable future.”

Despite initial opposition from Igor Sechin, head of Rosneft, Russia agreed to join the OPEC pact last November and has cut some production.

“We think that in the long-term global oil demand dynamics and reduced investment during the period of ultra low prices will balance the market, but that the risk of a price war resuming remains,” Rosneft wrote.

Russia has yet to comply fully with its pledge, but Saudi Arabia has cut production by more than agreed upon, compensating for weaker compliance by other pact participants.

In the past, under former Oil Minister Ali al-Maimi, Saudi Arabia resisted cutting output. Rosneft says under Maimi, the kingdom began a price war in an effort to maintain market share and squeeze out producers of ‘costly oil’.

“This goal became impossible to reach because of the efficiency and viability of the Russian oil industry,” Rosneft added.

Rosneft says Naimi forecast a collapse of mature oilfields in Russia, however, Russian production has risen in the past two years to an all time high of 11.2 million b/d.

According to Rosneft, the only guaranteed way to balance the oil market is for all producers to limit supplies, but this is unlikely to happen as US shale producers would not join such a pact.  US law forbids such action.