U.S. Shale Can't Replace OPEC as Swing Producer of Oil

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From Bloomberg:


The breathtaking crash in oil prices has generated a new conventional wisdom: America’s shale oil industry has supplanted OPEC as the so-called “swing” producer, rendering the 55-year-old cartel powerless to affect the price of crude. Veteran oil analyst Daniel Yergin told Bloomberg TV this week that the emergence of U.S. shale companies as “the swing producer” contributes to oil price volatility “because you’re talking about the impact of decisions made by thousands of individual producers.” 
With apologies to Yergin and others saying similar things, this is wrong on several levels. OPEC remains the only group that can meaningfully affect the price of oil by purposely raising or lowering output. American shale producers don’t coordinate their actions strategically the way the Vienna-based organization does; they must take whatever price the market gives them. To the degree that American shale producers do influence world oil prices by independently raising output when prices are high and cutting it when prices are low, they tend to stabilize the market, not add to volatility, as Yergin contends. (A spokesman for Yergin said he was traveling and not available for comment on this story.) 
Oil is certainly volatile at the moment. The price of West Texas Intermediate, the U.S. benchmark, stood at slightly over $100 a barrel as recently as June 2014. But soft economic growth and rising production, including from American frackers, has pushed it steadily lower. It broke below $40 on Dec. 4, the day OPEC oil ministers meeting in Vienna announced that production levels would remain unchanged, and it continued to sag in the following days, reaching a six-year low of $37.23 on Dec. 9. Inventories in the Organization of Economic Cooperation and Development nations, up 11 percent since June 2014, are at the highest since at least 1996.
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