This article first appeared in The Edge Financial Daily on September 14, 2017

KUALA LUMPUR: US shale oil production, rather than output cuts led by Opec, is likely to be the key supporting factor for a long-term brent crude oil price of US$60 (RM251.40) per barrel, said a World Bank senior economist.

John Baffes, who manages the bank’s commodities market outlook, also noted that announcements by the US Atomic Energy Commission appeared to have had a much bigger impact on oil prices last year.

“US shale oil is a flexible industry with a very short cycle, meaning producers can go in and out quickly,” Baffes told reporters on the sidelines of the Global Rubber Conference 2017.

It only takes three months for drilling to begin, enabling producers to adapt quickly to changes in oil prices, he said

This has been amplified by a reduction in the cost of both shale oil and its production, thus reducing the gap between the prices of different energy forms since the plunge in oil prices in 2014.

Baffes said decisions made by Opec and geopolitical tensions in the Middle East, which previously played a large role in determining oil prices, appear to have a lesser impact on the price of brent crude now.

“It was very clear that when Opec tried to re-engage the market in September and October last year, market response was very muted,” he said.

Although Opec is not irrelevant as it still accounts for a third of global oil production, he said its influence in the market had waned.

Going forward, Baffes said the main downside risk to the oil price is increased output from Iran now that trade sanctions have been lifted.

Meanwhile, a drop in output from Venezuela due to political unrest there may pose an upside risk to oil prices.