Structural changes are reshaping the global oil market. OPEC is losing influence as shale production booms and its members' interests diverge. A new oil axis centered in North America driven by private enterprise is emerging to counter Middle Eastern production. Meanwhile, China's growing oil demand is shifting trade routes east and challenging the dollar's dominance in oil markets. These changes will have long-lasting effects on global oil supply and geopolitics.

1. The new oil order:
OPEC fades, shale booms, China rise
Peter Pulikkan, Philipp Chladek, William Foiles, William Hares,
Lu Wang, Michael Kay, Andrew Cosgrove, Gurpal Dosanjh
Bloomberg Intelligence analysts

2. OPEC fades, shale booms, China rises: The forces reshaping oil

3. Structural changes are sweeping the global oil market. Power
within OPEC is becoming more diffuse, weakening the cartel.
A new oil axis centered in the Americas, driven increasingly by
private enterprise as markets are liberalized, is counterbalancing
the resource-nationalistic and troubled Middle East.
As these shifts alter supply, China’s growing appetite for imported
crude is reshaping demand and challenging the dollar’s central
role in the oil trade. These changes will reverberate long after
prices stabilize.

4. OPEC’s Golden Age fades into history with cartel over a barrel

5. OPEC has less influence than during its halcyon days in 1974,
when it accounted for about half of the world’s total supply of oil.
Today it contributes about 40%. The survival of any cartel depends
on two factors: the scarcity of the commodity and members’
respect for its quotas.
The shale boom and OPEC members’ fiscal distress threaten
stability, while Iran and Iraq may be capable of approaching
Saudi Arabia’s output by decade’s end. A multi-polar OPEC
rife with competing agendas will likely wield less power.

6. The coming age of petro-capitalism and oil market liberalization

7. With OPEC relaxing its grip on oil supply, market forces now set
the clearing price. Non-OPEC nations make up about 60% of
world output, and almost 40% of non-OPEC supply is from the
axis that runs from Canada’s oil sands, down through the shale
fields of North Dakota and Texas and over the Gulf of Mexico to
offshore oil deposits near Brazil.
This new, innovation-driven center of production is driving further
liberalization of oil markets and eschewing resource nationalism,
contrary to its Middle East competitors.

8. Petro-Capitalistism Confronts Resource Nationalism

9. Russia’s dash for sway over Mideast choke points challenges U.S.

10. Russia’s geostrategic circling of the Middle East has implications for
the global oil market.
In Syria, it seeks to establish a foothold from which to project
power across the region, challenging America’s influence. The war-
ravaged nation is linked to the Bab-el Mandeb Strait, the choke
point between the Horn of Africa and the Arabian Peninsula, via
the Mediterranean and the Suez Canal.
Russia is also cultivating ties to Iran, which sits next to the Strait
of Hormuz, the Persian Gulf’s only outlet to the sea.

11. Middle East Flash Points - Syria and Yemen
Armed
attack
Oil fields Ungoverned
region

12. Oil’s center of gravity moves east as China takes center stage

13. For more than 100 years, oil’s story was one of production growth to
supply a primarily Western-driven market. Now demand is increasing
across emerging economies and almost flat everywhere else.
In early 2014, China surpassed the U.S., long the biggest importer, to
become the top global importer of crude. The IEA projects that China
will import 7.1 million barrels a day in 2019 and most of the growth
will be long-haul trade from the Middle East. This shift is moving the
center of oil trading and pricing to Asia.

14. Future Crude Trade Routes Lead to Asia
Crude Exports in 2019 and Growth in 2013-19 for Key Trade Routes1
(million barrels per day)

15. Crude oil correction resembles 1985 in back to the future twist

16. Global economic and oil-market shocks sent crude plunging 50% or
more several times in recent decades. OPEC policy changes (1985-86),
U.S. recessions (1990-91 and 2001), the Asian financial crisis (1997-98)
and the global financial crisis (2007-09) all drove volatility
The current price drop resembles 1985-86. After prices jumped in
the 1970s, new technology opened up fields in the North Sea and
Alaska. In 1985, Saudi Arabia changed policy to raise its market share,
ushering in a lost decade for oil.

17. Precedent Oil Price Corrections

18. Bloomberg Intelligence offers valuable industry and company data,
interactive charting and written analysis with government and credit
insights from a team of independent experts, giving trading and
investment professionals deep insight into where crucial industries
stand today and where they may be heading next.