New ‘OPEC’ Of U.S. Oil Super Majors Could Seize Control Of Global Pricing

By 2025, the U.S. is forecast to produce more energy than Russia and Saudi Arabia combined

Note: This article serves as a warning to the dollar bashers in the alt-financial media who observe a firm dollar and rising dollar-denominated asset values with contempt. It’s not too late to change your ways.

According to the U.S. Energy Information Administration, total crude output is at a record 12.2 million bpd now and is expected to reach 13 million bpd by end-2020.

By 2025, the U.S. will produce about 24 million bpd, more crude and energy liquids than Saudi Arabia and Russia output put together, forecasts show. This is partly due to a huge leap in drilling efficiency, one of the many evolving wonders of the shale industry, which isn’t as talked about as the record volumes of oil being produced.

Also missing from mainstream discussions on energy is the potential for Big Oil to become even bigger in U.S. shale by swallowing the smaller, independent drillers that make up the majority of the industry.

New ‘OPEC’ Of U.S. Oil Super Majors Could Seize Control Of Global Pricing –, March 12th

I came across this article from titled, New ‘OPEC’ Of U.S. Oil Super Majors Could Seize Control Of Global Pricing,  and it illustrates the huge industry growth and the rising power that the large and well-funded oil majors possess in the U.S. shale regions.

In fact, the domestic energy market has grown so large in just a decade that the U.S. dollar has strengthened based on this one item alone. I see a definite longer-term relationship between the value of the greenback and the size of domestic oil production.

As long as oil production continues to grow, the dollar will remain well-supported
Exxon can produce over 10% returns on its Permian assets with $35 oil

Of particular danger to the Kingdom: oil super majors like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) usurping so much production capacity in U.S. shale oil in coming years that they become as influential as the Organization of the Petroleum Exporting Countries (OPEC) in shipping to the coveted Asian markets and dictating prices there.

That, in the words of John Kilduff, founding partner of New York energy hedge fund Again Capital, would present “a very precarious landscape for the future of Saudi oil” as well as “an incredible opportunity for the super majors to become an OPEC of their own kind.”

The world got a glimpse of what that future might look like after Exxon Mobil and Chevron recently announced plans to ramp up by almost another one million barrels per day their existing production at top U.S. shale basin Permian. Exxon Mobil went further to say that it expected double-digit returns on its Permian investments, even at low oil prices. For example, at $35 per barrel, Permian production will have an average return of more than 10%, it said.

New ‘OPEC’ Of U.S. Oil Super Majors Could Seize Control Of Global Pricing –, March 12th

As investors, we have to accept the fact that the United States has become the world’s largest and most important energy producer. I keep these numbers and facts in mind when I formulate my longer-term investment theses. I do not see how the greenback can sustain any meaningful loss in purchasing power vis-a-vis other major currencies while this dynamic continues to unfold.

The large oil firms are squeezing everyone else

John Kilduff, founding partner of New York energy hedge fund Again Capital, said, “with the majors going into the Permian to do roll-outs, the independents there are getting squeezed by the banks, which want them to cough out more money or get out.”

“The most interesting aspect of shale were all the little, independent guys getting together to change the dynamics of the game. But if Big Oil buys them out, then Big Oil will control shale and ultimately prices of U.S. oil and wherever that oil goes.”

A Bloomberg report on Monday validated the Exxon Mobil claim, saying Big Oil companies that suffered from the 2014 market crash had learned to become more efficient. They now make profits similar to the $100-per-barrel days, because they share designs on almost everything from underwater valves to pumps to ensure standard and sustainable costs. These firms are now concentrating on economical U.S. shale patches rather than expensive far-flung projects around the world. The eight largest integrated oil and gas companies saw spending fall to $118 billion last year, down 45% from a pre-crisis peak of $215 billion in 2013. U.S. oil rig count was down 48% from October 2014, while the country was producing 36% more crude.

There are just too many structural supports to the U.S. dollar and anyone telling you otherwise is foolish. While I am not sanguine on the tightening power grip of only several large shale players, I have to accept that they will help to place a floor under the U.S. dollar for years to come.

Who would have thought that this turn of events from just 10 years ago was possible? If we look at the graph above I think we can spot a definite trend.