Can U.S. Shale And OPEC Find Common Ground?

As OPEC's June 22 summit rapidly approaches, everything hangs in the balance for the organization's precarious (to say the least) relationship with United States shale CEOs. But suddenly, for the first time in years, it looks like the two sides of the oil price battle have found some common ground.

According to reporting by Reuters, interviews with analysts, executives and investors have revealed that OPEC and Big Shale are ready to turn over a new lead and work together to maintain control over global supply and demand for crude oil.

While this year's dramatic rise in crude prices (an increase of more than 40 percent as compared to last year) has meant higher profits across the industry, the high prices threaten to turn people away from fossil fuels. This delicate balance, as well as OPEC's meeting, come at an important crossroads, as electrictrification becomes more readily accessible around the world.

This won't be the first meeting between OPEC and U.S. representatives this year. In fact, they've already met at least twice. The upcoming June 22 meeting in Vienna, however, is by far the most high-profile of the three. In attendance will be such magnates as Harold Hamm, billionaire founder of shale major Continental Resources Inc, Hess Corp CEO John Hess and Pioneer Natural Resource Co Executive Chairman Scott Sheffield. You can be sure that the need to find a balance between raising profits and threatening demand will be at the top of the agenda.

Since the U.S. oil export ban in 2015, the U.S. crude market exploded, sending nearly 2 million barrels to India, China and other major markets previously dominated by OPEC. This major shift in the industry has left a lot of bad blood between OPEC and U.S. shale, but by the same token, OPEC was put at a negotiative disadvantage, forcing them to be conciliatory to their new rivals.

Hamm, who once erected a granite monument to rising U.S. oil production and domestic energy independence in North Dakota, is now encouraging his fellow shale magnates to follow in OPEC's footsteps and focus on price over production. Just last month, the shale tycoon even went so far as to address a Saudi Aramco board meeting in Houston, a move unimaginable just a few years ago, due to tensions between the U.S. and OPEC nations.

Despite Reuter's reporting, not everyone is convinced that OPEC and U.S. shale are ready to turn over a new leaf and play nicely in the upcoming summit. Bloomberg has been predicting an OPEC-shale war since late last year. And now, as Reuters boasts peace, CNBC, citing industry experts, is simultaneously reporting that the upcoming meeting "could be one of the most fractious in recent years with competing interests and demands at play."

The conflict, however, might not come from the U.S. shale leaders, the usual suspects, but from within OPEC's own ranks. While Saudi Arabia and Russia are ready to increase output after years of production caps, other major players, including Iran and Iraq, are staunchly against the move.

Also setting the scene for a tense summit, world leaders like U.S. President Donald Trump have lashed out against high oil prices, giving OPEC the blame for contributing to economic hardships. To make geopolitical matters even more complicated, U.S. Treasury Secretary Steven Mnuchin has been pushing for higher production in preparation for sanctions against Iran. In addition, OPEC is expecting major supply shortages from Venezuela, due to their current political and economic crisis. The nation has been an invaluable producer in the past.

While U.S. shale leaders may want to make nice with OPEC in a common interest to stabilize crude prices, this is much easier said than done. U.S. shale producers are legally prohibited from coordinating their output due to antitrust laws. This makes it exceedingly difficult to work with each other and with OPEC in order to curb volatility in market pricing.

Despite major bureaucratic hurdles and OPEC infighting, everyone at the upcoming June 22 summit will be united in at least one common front: a desperate need to ensure that consumers stick with fossil fuels. In the age of Elon Musk, we may be just one price spike away from an electric takeover.