Permian Basin continues to put OPEC in a bind

Ambrose Evans-Pritchard:
The Opec oil cartel is waking up to an unpleasant surprise. Shale output from the Permian Basin in Texas is expanding faster than the world thought humanly possible.

The scale threatens to neutralise output cuts agreed by Saudi Arabia and a Russian-led bloc last November, and ultimately threatens break their strategic lockhold on the global crude market for a generation.

"People just don't seem to realise how big the Permian is. It will eventually pass the Ghawar field in Saudi Arabia, and that is the biggest in the world," said Scott Sheffield, founder of Pioneer Natural Resources and acclaimed 'King of the Permian'.
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Because the Permian is being developed by businesses it does not have to carry the weight of government spending that many of the OPEC countries have built into their cost structure.  The shale producers got more efficient during the downturn and their costs are now lower than most OPEC countries.

OPEC actually lost control of the oil market a few years ago as the shale oil came online in volume.  The OPEC countries reaction to that was a suicidal price war that was counter productive.  It actually made the shale companies more efficient and more focused on plays like the Permian.  By engaging in predatory pricing OPEC in effect put a ceiling on its own prices equal to the cost of production by the shale producers.

Non-OPECcountries like Russia also find it more difficult to engage in extortion against some of their customers in places like Europe.

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