The US is the world’s largest consumer of oil, as well as one of its largest producers, making it uniquely positioned at the recent International Energy Forum in Algiers.
The forum’s intent is to bring together oil producers and consumers every three years for two days of dialogue, analysis of energy trends, and promotion of greater transparency in energy markets.
This year’s forum was overshadowed by the OPEC meeting on the sidelines. Though the US is not a member nor is its oil industry state-controlled, the producer group’s decisions still resonate there, making the US’ representative at the IEF, Assistant Energy Secretary Jonathan Elkind, a keen observer of the proceedings.
The message he had for OPEC: transparency is good, market controls are not.
“We come back time and again to the point that artificial intrusions into the market, whether one is talking about production or price constraints, they don’t work,” Elkind said in an interview. “What does work is respecting that markets are meant to be flexible, they’re meant to be dynamic. They’re not meant to be stable, though everybody has a stake in good information that helps to tamp down volatility.”
Of course, OPEC would eventually decide in Algiers to freeze production between 32.5 million to 33 million b/d, with the full details – including individual country allocations – to be decided at the organization’s next formal meeting November 30 in Vienna.
That’s a cut of between 240,000 to 740,000 b/d from OPEC’s current production levels.
Some American oil industry officials, such as Continental Resources CEO Harold Hamm, who is advising Republican presidential contender Donald Trump, have openly urged OPEC to freeze output, as such action is likely to put a floor under prices and help boost US shale drillers.
Indeed, the response of the US shale industry, whose boom prompted OPEC two years ago to adopt its market share strategy that it has now apparently abandoned, will be key to OPEC’s decision making in Vienna.
Algerian oil minister Noureddine Bouterfa was quoted October 6 as saying OPEC could decide to cut further, if market conditions warrant.
The US Energy Information Administration last month projected that 2017 crude production in the US will be 8.5 million b/d, which is 200,000 b/d higher than its August forecast for next year.
“Shale has dramatically changed the kind of strategy that OPEC was employing,” Adam Sieminski said in an interview with S&P Global Platts’ Takeo Kumagai. “OPEC will be looking at our production statistics and if they saw US production beginning to recover, would make difference to what they were doing.”
In Algiers, Elkind maintained a neutral stance at the IEF. Low prices, after all, are good for consumers, and the US has a lot of those.
“Fundamentally the core answer here is that we are a believer in markets,” he said. “We believe in the power of markets that are well informed to provide signals to investors and consumers. At the household level, at the company level, markets will provide the guideposts that tell participants whether there is scarcity or abundance. We think that’s the right way to think about the oil markets today.”
Most of his discussions with his ministerial counterparts involved promoting market data transparency through the Joint Organizations Data Initiative.
He said he also discussed energy innovation and how governments can get involved in fostering their own energy industries, whether in renewables or traditional fossil fuels.
Elkind noted that the US Department of Energy’s investments in fracking and horizontal drilling research during the 1980s and 1990s were key in helping those techniques reach commercial scale, unlocking the US’ vast reserves of shale oil and gas.
“It’s fundamentally all about enabling and enhancing energy security in a form that is affordable and accessible,” he said. “The sweet spot in IEF is in providing information that allows producers and consumers to think about the market ahead.”