Most of this incredible industrial ability in unconventional oil fields, is due to the so called ‘fracklog’. This is a backlog of oil deposits already explored, with infrastructure in place to speed up extraction, just waiting for the right time. In fact, this capability not only makes the US a central player on the supply side of oil again after more than 70 years, but it also threatens the ability of black gold to rise back up to pre-2014 levels again.
This shift also negates the power that OPEC members – especially Saudi Arabia – wielded just a few years ago. However, the world runs the real risk of concentrating oil exploration and extraction as a result. Oil fields which are in developing countries that just started to enjoy the benefits of taking newly found reserves to market, will surely be affected. This is due to the head-start that traditional, low cost producers have, along with the industrial and technological prowess that the US now displays.
Fracklog could well keep oil prices subdued for a long time, but the increasing concentration of production will heighten risks of disruption on the supply side. This situation would increase crude price volatility and economic uncertainty, at a key junction in Middle East politics. With Saudi Arabia and Iran using oil as yet another proxy for the struggle for hegemony in the Middle East, fracklog will not be able to respond to any wild card event in that region. This combined with the now almost inexistent exploration budgets, makes the potential for volatility even more imminent.
