How Shale producers may frustrate OPEC deal

There are strong indications that Shale Oil producers in the United States may eventually frustrate the deal by member countries of the Organisation of Petroleum Exporting Countries (OPEC) to cut output by November 30, 2016, in order to push crude prices up north.

Several member countries of OPEC have been hit with declining crude price overtime which has declined from about $120 per barrel in June 2014 to less than $30 per barrel in January 2016. It is relatively selling at less than $50 per barrel and OPEC is determined to cut output and push the price upward.

However, studies have shown that at relatively $50 per barrel or less, shale gas producers cannot operate because of the expensive technology they used in fracking. Most of them are out of production because they will be producing at a loss.

They shut down operations because it was only recovering its variable cost at a time crude price was selling at less than $50 per barrel.

If crude price rises above $60 per barrel and moves towards $70 per barrel, shale producers will return, glut may rerun to the markets and crude prices may move south again.

While OPEC identified glut in the market to be around less than 1million barrel per day, experts argued that glut may actually exceed what OPEC projected. They put it at about two million barrels per day when they considered non-OPEC activities in the market.