Middle East-Dominated OPEC is Winning the Market Share War: IEA

The Middle East's market share is the highest its been since the late 1970s.

The U.S. shale industry may have shaken up Organization of the Petroleum Exporting Countries (OPEC) members and proven to be more resilient than assumed when the members scrambled to regain market share - but as far as the International Energy Agency is concerned, its latest report demonstrates that the cartel is winning the market share war.

The report says OPEC's output from 14 members rose 400,000 barrels per day (bpd) in June to an eight-year high of 33.21 million barrels; Middle Eastern production rose to a record-high of 31.5 million bpd in June, giving that region a rise in market share to 35 percent, the highest since the late 1970s.

Meanwhile, U.S. oil production fell 140,000 bpd to 12.45 million, and according to the U.S. Energy Information Administration the nation correspondingly increased its import of Middle East oil, to over 5 million bpd in April compared to 4.6 million bpd a year ago.

Breaking down the OPEC figures, the IEA noted that Saudi Arabia boosted production to a near-record 10.45 million bpd; Iran's production increased by 50,000 bpd from May to 3.66 million barrels in June; and Iraq produced 4.25 million bpd during the month, which is 65,000 bpd higher than a year ago.

In reporting the IEA data, The Wall Street Journal said the numbers are noteworthy considering the Middle East is enduring a prolonged period of political and social volatility, and it credits the Saudis, Iran, and Iraq for driving OPEC's market comeback.

Moreover, the agency points out that "When U.S. shale production was moving upward very fast, it became fashionable to talk of lower reliance on traditional suppliers"; but the Middle East's market share is "an eloquent reminder that even when U.S. shale production does resume its growth, older producers will remain essential for oil markets."

The IEA also warns that despite oil prices having recovered somewhat, they're still nowhere near the prices of two years ago, and that the resulting cutbacks in industry investment could cause an even greater reliance on the Middle East in the future.

Leonid Bershidsky, a columnist for Bloomberg View, believes that despite the havoc it has caused to local economies, on balance the Saudis are the victors of the market wars: last month he wrote, "The North American shale industry knows now that it's at the mercy of Saudi Arabia; the kingdom has more than 2 million barrels a day -- perhaps even 3 million if necessary -- of spare production capacity that it can use to flood the market again, drive down prices and render any ambitious American plans useless."