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| OPEC, Fighting Market Forces, Extends Production Cuts | OPEC, Fighting Market Forces, Extends Production Cuts |
| (about 3 hours later) | |
| VIENNA — A sense of déjà vu pervaded the latest meeting of oil exporting countries. While production cuts have once again bolstered oil prices, the optimism may fade, as shale producers in the United States jump back into the market and the rise of renewables dims prospects for future demand. | VIENNA — A sense of déjà vu pervaded the latest meeting of oil exporting countries. While production cuts have once again bolstered oil prices, the optimism may fade, as shale producers in the United States jump back into the market and the rise of renewables dims prospects for future demand. |
| The Organization of the Petroleum Exporting Countries extended oil production cuts through March 2018, Khalid A. al-Falih, the Saudi energy minister, said in Vienna on Thursday. The move follows a decision this month by Saudi Arabia and Russia to do so. | The Organization of the Petroleum Exporting Countries extended oil production cuts through March 2018, Khalid A. al-Falih, the Saudi energy minister, said in Vienna on Thursday. The move follows a decision this month by Saudi Arabia and Russia to do so. |
| The earlier announcement helped lift prices from a low of $46. But on Thursday, prices slipped nearly 3 percent. | |
| The markets followed a similar path in September, when OPEC, along with Russia and other nations, initially outlined plans for reductions. When the euphoria faded, prices slumped. | The markets followed a similar path in September, when OPEC, along with Russia and other nations, initially outlined plans for reductions. When the euphoria faded, prices slumped. |
| “OPEC is being caught in a pincer movement of technology and policy that will, over time, erode oil use,” said Bill Farren-Price, chief executive of Petroleum Policy Intelligence, an advisory firm for hedge funds and other investors. “This meeting is more about forestalling an oil price collapse than driving prices higher.” | “OPEC is being caught in a pincer movement of technology and policy that will, over time, erode oil use,” said Bill Farren-Price, chief executive of Petroleum Policy Intelligence, an advisory firm for hedge funds and other investors. “This meeting is more about forestalling an oil price collapse than driving prices higher.” |
| Here are some factors muting the impact of the cuts to output. | Here are some factors muting the impact of the cuts to output. |
| Oil prices that topped $100 a barrel as recently as 2014 may have helped plant the seeds that are now weakening OPEC. | Oil prices that topped $100 a barrel as recently as 2014 may have helped plant the seeds that are now weakening OPEC. |
| Back then, companies in the United States took advantage of the high prices, learning to produce huge quantities of oil from shale rock in a process called hydraulic fracturing, or fracking. The technique, which involves extracting energy by drilling long horizontal wells and then loosening oil from the rock, has transformed the United States into a so-called swing producer, able to adjust production rapidly to match changes in the market. | Back then, companies in the United States took advantage of the high prices, learning to produce huge quantities of oil from shale rock in a process called hydraulic fracturing, or fracking. The technique, which involves extracting energy by drilling long horizontal wells and then loosening oil from the rock, has transformed the United States into a so-called swing producer, able to adjust production rapidly to match changes in the market. |
| But fracking has required substantial investment. When oil prices plummeted in 2015 and 2016, output from shale in the United States fell around 900,000 barrels a day, equivalent to almost 1 percent of the global supply. | But fracking has required substantial investment. When oil prices plummeted in 2015 and 2016, output from shale in the United States fell around 900,000 barrels a day, equivalent to almost 1 percent of the global supply. |
| The American shale industry today, however, is far more efficient. And unlike in previous years, it has an array of sources of capital to finance the drilling of new wells, including advance sales of oil, bank and private loans, and high-yield bonds. | The American shale industry today, however, is far more efficient. And unlike in previous years, it has an array of sources of capital to finance the drilling of new wells, including advance sales of oil, bank and private loans, and high-yield bonds. |
| When prices are down, that money dries up. But when prices tick up around $52 a barrel, activity ramps up quickly, according to Roger Diwan, a vice president at IHS Financial Services, which advises investors. | When prices are down, that money dries up. But when prices tick up around $52 a barrel, activity ramps up quickly, according to Roger Diwan, a vice president at IHS Financial Services, which advises investors. |
| Now, OPEC’s biggest worry is a revival of American shale production, presenting the bloc with a thorny problem as it considers its own market moves. | Now, OPEC’s biggest worry is a revival of American shale production, presenting the bloc with a thorny problem as it considers its own market moves. |
| “The higher the price goes, the more shale operators accelerate production, and the more OPEC has to cut,” said Mr. Diwan, who forecast that United States shale operators would increase their output by about 900,000 barrels a day this year, soaking up much of OPEC’s production cuts. | “The higher the price goes, the more shale operators accelerate production, and the more OPEC has to cut,” said Mr. Diwan, who forecast that United States shale operators would increase their output by about 900,000 barrels a day this year, soaking up much of OPEC’s production cuts. |
| A few years ago, high energy prices were sustained by a belief that the supply of oil was reaching a peak, but demand — driven by fast-growing economies like China and India — would keep rising. | A few years ago, high energy prices were sustained by a belief that the supply of oil was reaching a peak, but demand — driven by fast-growing economies like China and India — would keep rising. |
| The trends are shifting, and fast. Not only does there seem to be a major new source of oil from shale, but growth in demand is slowing. | The trends are shifting, and fast. Not only does there seem to be a major new source of oil from shale, but growth in demand is slowing. |
| In particular, the increasing number of electric vehicles is playing a role in limiting demand for oil. Their impact may grow with the development of cars run by computers. | In particular, the increasing number of electric vehicles is playing a role in limiting demand for oil. Their impact may grow with the development of cars run by computers. |
| “Everything is gradually going digital and everything digital is effectively electric,” Dieter Helm, a professor of energy policy at the University of Oxford, wrote in a recent commentary. “Transport will not escape this trend.” | “Everything is gradually going digital and everything digital is effectively electric,” Dieter Helm, a professor of energy policy at the University of Oxford, wrote in a recent commentary. “Transport will not escape this trend.” |
| Mr. Helm, the author of a new book, “Burn Out,” on the decline of fossil fuels, argues that given oil’s uncertain future, $50 a barrel could prove to be a “very high” price. | Mr. Helm, the author of a new book, “Burn Out,” on the decline of fossil fuels, argues that given oil’s uncertain future, $50 a barrel could prove to be a “very high” price. |
| Even some big oil companies are coming around to the view that demand for fossil fuels may soon decline. | Even some big oil companies are coming around to the view that demand for fossil fuels may soon decline. |
| In its Energy Outlook 2017, BP said that if the rise of alternative fuel vehicles, improved fuel efficiency and other trends accelerated more than expected, demand for oil might peak as early as 2035. | In its Energy Outlook 2017, BP said that if the rise of alternative fuel vehicles, improved fuel efficiency and other trends accelerated more than expected, demand for oil might peak as early as 2035. |
| In decades past, an OPEC decision to curb or increase production had wide consequences and would move markets. | In decades past, an OPEC decision to curb or increase production had wide consequences and would move markets. |
| That is no longer the case. | That is no longer the case. |
| “OPEC has used Band-Aids to get through crises of the moment,” said Bhushan Bahree, an OPEC analyst at the research firm IHS Energy. “It’s not clear they are willing or able to address the larger issues of the global market.” | “OPEC has used Band-Aids to get through crises of the moment,” said Bhushan Bahree, an OPEC analyst at the research firm IHS Energy. “It’s not clear they are willing or able to address the larger issues of the global market.” |
| With that in mind, Saudi Arabia, OPEC’s de facto leader, brought in Russia and other producers outside the cartel to lend clout to the recent production cuts. | With that in mind, Saudi Arabia, OPEC’s de facto leader, brought in Russia and other producers outside the cartel to lend clout to the recent production cuts. |
| But adding those players has increased the complexity of presenting a united front. | But adding those players has increased the complexity of presenting a united front. |
| There is already disunity in the 13-nation bloc. Member countries like Iraq and Iran believe they are entitled to higher production because of years of revenue lost to conflict and sanctions, and will probably press for increases to their output allocations. | There is already disunity in the 13-nation bloc. Member countries like Iraq and Iran believe they are entitled to higher production because of years of revenue lost to conflict and sanctions, and will probably press for increases to their output allocations. |
| There has also been a disconnect between the announced level of the cuts and the actual reductions. | There has also been a disconnect between the announced level of the cuts and the actual reductions. |
| Knowing that cuts were on the horizon, OPEC members increased production before they were implemented, which meant they were starting from an artificially high base. Several members have also been selling from their stockpiles of crude, blunting the impact of the reductions. | Knowing that cuts were on the horizon, OPEC members increased production before they were implemented, which meant they were starting from an artificially high base. Several members have also been selling from their stockpiles of crude, blunting the impact of the reductions. |
| IHS Markit, for instance, estimates that OPEC countries trimmed output by 1.1 million barrels a day in the first quarter of 2017, but exports fell by only 900,000 barrels a day. | IHS Markit, for instance, estimates that OPEC countries trimmed output by 1.1 million barrels a day in the first quarter of 2017, but exports fell by only 900,000 barrels a day. |
| There are signs that the oil glut is easing, but its persistence has undermined OPEC’s ability to affect the markets. | There are signs that the oil glut is easing, but its persistence has undermined OPEC’s ability to affect the markets. |