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London - Two landmark events this month will underscore the extent to which the oil market's balance of power has been transformed by the shale revolution.
In Washington, Congress will begin considering legislation to permit the export of crude oil from the United States, reversing a four decade ban put in place after the first oil crisis in 1973 to 1974.
In Vienna, the Organisation of the Petroleum Exporting Countries (OPEC) is expected to roll over its crude production target of 30 million barrels per day (bpd) even though prices have fallen more than 40 percent over the last 12 months.
Rather than reduce production to boost prices, Saudi Arabia and the other OPEC members are prepared to continue pumping to defend market share and maximise revenue.
After 40 years when OPEC appeared to play the dominant role balancing supply and demand and influencing prices (sometimes successfully, sometimes not), power has passed to the shale drillers of North America.
Now it is the shale drillers who must decide whether to respond to the recent price rebound by re-activating rigs and completing more wells, at the risk of sending the price tumbling again.
An oil superpower
The United States has always been a major petroleum producer and for much of its history it was a big exporter of both crude oil and refined fuels as well.
Until as late as 1952, the United States still accounted for more than half of worldwide daily crude production - dwarfing output from other early producers such as the Dutch East Indies, Burma, Russia, Romania, Mexico and Iran.
The United States ran a persistent trade surplus in crude and refined fuels with the rest of the world. From 1952 onwards, however, the country began to run deficits, which became increasingly wide and had reached $2bn per year by 1970.
Between 1950 and 1970, the US share of worldwide crude production had fallen from 50% to just 20%.
Foreign competition
There was no shortage of oil at home: US crude production rose from 6 million bpd in 1952 to almost 10 million bpd in 1970.
But US oil production from the ageing fields of Texas, Oklahoma and California was undercut by lower cost producers in the rest of the world.
Massive oil fields in the Middle East and Latin America, discovered between the 1920s and the 1950s, were put into production during the 1950s and 1960s (in many cases by US and European oil companies) unleashing a flood of cheap crude onto world markets.
It posed a direct challenge to domestic US producers. "Since foreign oil was so much cheaper than domestic, it served the short-term interests of American consumers. Dependence on foreign oil, however, posed a problem for national security," according to historian Richard Vietor ("Energy policy in America since 1945" 1984).
Anticipating heightened competition from foreign oil after the end of World War Two, US oil producers wrote to the federal government in 1945 "it should be the policy of this nation to so restrict amounts of imported oil so that such quantities will not disturb or depress the producing end of the domestic petroleum industry."
From 1950 to 1959, the US oil industry tried various voluntary restrictions on imports to help the struggling producers of Texas and the other oil producing states. But the voluntary approach failed to halt surging imports and in 1959 the federal government introduced legal quotas under the Mandatory Oil Import Program, which lasted until 1973.
Coping with surplus
In the meantime, the Texas Railroad Commission and other state conservation commissions ordered domestic producers to reduce output by flowing their wells only so many days each month or choking them back to a percentage of their maximum efficient rate of production.
By 1962, Texas wells were flowing on fewer than 10 days per month to avoid flooding the market and to prop up prices, which nonetheless continued to fall in real terms.
But the long period of low and falling real oil prices in the 1950s and 1960s stimulated a massive increase in oil demand while curbing investment in capacity in the United States to replace depleting fields.
By 1972 the last remaining spare capacity in Texas had disappeared, handing pricing power to OPEC, though the shift did not become apparent for another 18 months, when the Arab countries cut production and embargoed the United States in protest at its support for Israel in the 1973 war.
The impact on the US trade balance from a combination of stagnating domestic production, rising imports and sharply higher prices was devastating.
The US deficit in crude and refined fuels soared from $2.3bn in 1970 and $7bn in 1973 to $24bn by 1975 and $75bn in 1980.
The gap narrowed to $30bn in 1986 following the oil price collapse and an increase in US crude output but then began to widen again more or less continuously for 20 years.
Since 2005, however, the combination of reduced petroleum demand and the shale revolution has cut net imports of crude and fuels from 12.5 million barrels per day to just 5 million b/d in 2014.
The balance of power
There has never been a shortage of oil (either in the United States or globally) at any point in the last 150 years - it's just a question of price, investment and technology.
Big shifts in prices, trade and the balance of power have been driven by discoveries (Pennsylvania in the 1860s, the southwestern United States from 1900 through the 1930s, California in the 1920s, Iran from 1908 and then the Arab countries from the 1930s through the 1950s) and improvements in technology (offshore, shale).
The last 70 years have seen repeated shifts in market share and power between the United States and the Middle East producers. The shale boom is just the latest manifestation.
In the 1950s and 1960s, it was the oil exporting countries that squeezed producers in Texas and the other US states. Now US producers are having the same impact in reverse thanks to the shale revolution.
Lessons for policymakers
The history of relations between the United States and the oil exporting countries contains three clear lessons.
First, attempts to control oil imports or exports in the name of "national security" have never worked. The United States has been most secure when its domestic oil industry has been strong. At the moment that means permitting crude exports to enable domestic producers to realise the best possible prices and maximise production.
Second, OPEC has only intermittently played a decisive role in shaping the supply-demand balance. For the most part, supply and prices have been driven by factors outside the organisation's control (the exhaustion of US spare capacity in the early 1970s, big discoveries in Alaska and the North Sea in the 1970s and 1980s, rapid growth in China in the 2000s and now the shale revolution).
OPEC members have more often accommodated their policies to developments in the global market rather than the other way around. In that sense, the organization's response to the shale revolution has been consistent with past experience.
Third, reports of the demise of OPEC are much exaggerated. The United States currently accounts for about 10% of global crude production, up from a low of less than 6% in 2008, but still just half its share in 1970.
The US oil industry has become the marginal supplier of crude to the global market and is driving prices. But its market share is still just one-quarter of the crude and condensates produced by OPEC members.
