May 28, 2013, 7:06 a.m. EDT
By Benoit Faucon, Sarah Kent and Hassan Hafidh
LONDON (MarketWatch) — Rising American output of shale oil is rewriting global trade patterns and deepening fault lines within the Organization of the Petroleum Exporting Countries, limiting its ability to mount a collective response.
A crucial OPEC meeting in Vienna on Friday will mark the first stage of a debate on shale’s oil’s impact.
The meeting is unlikely to lead to a change in production levels, several OPEC delegates said — but inaction would set the stage for a future showdown. “We are heading toward some problems,” a delegate from a Persian Gulf OPEC member said.
Oil output from the U.S. and Canada is set to rise about 21% from this year to 2018, according to data from the International Energy Agency, largely a result of growing production from fracking and other technologies that access once-inaccessible reserves.
African OPEC members such as Algeria and Nigeria — which produce oil of similar grade to shale oil — are suffering the worst effects from the North American oil boom; Nigeria oil minister Diezani Alison-Madueke deemed U.S. shale oil a “grave concern.”
Gulf countries, notably Saudi Arabia, pass relatively unscathed — and are the only OPEC members with flexible output and in a position to cut production.
This disparity looks set to deepen power struggles that have dominated OPEC in recent years. Iran, Venezuela and Algeria, who need high oil prices to cover domestic spending and offset falling production, have regularly clashed with Gulf countries led by Saudi Arabia, who have the financial strength to withstand lower prices.
OPEC has overcome past rivalries to rally together against an external threat, most notably in 2008 when it agreed to a production cut of more than four million barrels a day to stem a price crash during the financial crisis. But the uneven impact of the North American supply surge makes a collective response — such as a coordinated production cut to support prices — more difficult, said delegates on both sides of the divide.