Kodiak Oil & Gas Corp (USA) (KOG), Chesapeake Energy Corporation (CHK): Is This the Biggest Threat to OPEC?

The Organization of the Petroleum Exporting Countries, or OPEC, describes itself as “a permanent intergovernmental organization of 12 oil-exporting developing nations that coordinates and unifies the petroleum policies of its Member Countries.”

Historically, the organization has exerted considerable influence on the world oil market, with many even characterizing it as a cartel. Over the past three decades or so, it has produced a little less than half of the world’s oil, with its Gulf State members still controlling most of the world’s crude oil spare capacity. By lowering their collective output, OPEC members can push global oil prices higher, or so the logic goes.

But now, there is convincing evidence that OPEC’s sway in the oil market is waning. Let’s take a closer look at some of the major recent developments that may be keeping OPEC members up at night.

OPEC’s glory days
In previous decades, OPEC’s influence on the global oil market was almost undeniable. The surge in oil prices during 1973, for instance, can be attributed largely to OPEC actions, which included a dramatic increase in “posted prices” for their oil, as well as a wave of nationalizations among OPEC member nations and the organization’s temporary embargo against the U.S. and others.

But a lot has changed since those days. Since 2008, non-OPEC oil supplies have increased dramatically, fueled by growing production from U.S. shale, Canada’s oil sands, and deepwater discoveries off the coasts of Brazil, Africa and other parts of the globe.

This year, non-OPEC supplies are projected to grow by almost 1 million barrels a day, largely because of advances in drilling technologies that have allowed energy companies to extract massive quantities of oil from leading U.S. shale plays such as North Dakota’s Bakken and Texas’ Eagle Ford.

Kodiak Oil & Gas Corp (USA) (NYSE:KOG)

In the Bakken, for instance, Kodiak Oil & Gas Corp (USA) (NYSE:KOG) roughly tripled its average production between 2011 and 2012 and is projecting to double this year’s production from last year’s levels. And in the Eagle Ford, Chesapeake Energy Corporation (NYSE:CHK) reported fourth-quarter daily net production of 62,500 barrels per day, representing a whopping 266% year-over-year increase.

Not surprisingly, North Dakota’s field production of crude oil has increased more than fivefold over the past five years, going from 45.1 million in 2007 to 242.5 million barrels last year, while Texas’ crude oil production has almost doubled over the same period, from 391.1 million barrels to 721.4 million.

OPEC lowers its forecast
Though senior OPEC officials initially downplayed the threat of rising North American oil supplies, it looks as though the organization has now started to seriously consider the shale boom as a major threat.