Two Major Market Shifts
In 2011-2012 and 2018-2019, two significant events reshaped the oil market. First, in 2011, the emergence of shale oil in the United States revolutionized production. Until 2010, the U.S. produced 5 million barrels per day of conventional oil. By 2011, they began exploiting shale deposits, leading to a current output of 8 million barrels per day of shale oil and 5 million of conventional oil, totaling 13 million barrels per day, making the U.S. the largest producer of hydrocarbons.
Reformation of OPEC Cartel
In 2018-2019, the reformation of the OPEC cartel occurred. Previously, there was no coordination among oil-producing countries. When demand increased, all producers ramped up production, diluting the benefits. Conversely, during a demand decrease, some countries did not reduce output, causing market instability. Starting in 2018, under Saudi Arabia’s initiative, oil-producing countries began coordinating production based on demand, reducing OPEC’s output from 40 million barrels per day in 2016-2018 to 35 million today.
Impact on Prices
These changes had direct effects on prices: post-2019, oil prices fluctuated between $40 and $85 per barrel, compared to $80 to $120 previously. An increase in supply by 1 million barrels per day typically lowers the price by about $10 per barrel. The price of oil has become less cyclical, maintaining stability around $85 to $90 per barrel outside of the COVID-19 period, despite a significant economic slowdown in 2023. Europe can no longer rely on cheap oil during economic stagnation as it did in the past.
Future Outlook
According to the International Energy Agency, oil production is expected to significantly decline by 2050, with a reduction in consumption starting as early as 2030. Decarbonization efforts and the rise of electric vehicles in China are early indicators of this trend. However, it remains to be seen if this decrease in demand will destabilize the OPEC cartel once again.
