In the high-stakes contest between the United States, the biggest shale oil producer, and Saudi Arabia, the biggest oil exporter, America has blinked first.
The OPEC refusal to cut production at its November meeting was widely seen as the declaration of a price war against booming U.S. shale oil producers, which had sent their country’s oil production soaring. Saudis had watched as their market share dropped precipitously in the world’s biggest oil-consuming nation, and they wanted to send a clear message across the global energy market that they weren’t about to back off.
Oil prices have been in freefall ever since. Brent crude, the global oil benchmark, sank another 3 per cent Friday to $61.85 (U.S.) a barrel, while West Texas intermediate, the U.S. benchmark, dropped 3.6 per cent to $57.81, extending its slide from well over $100 a barrel in the summer.
If the global oil standoff pits the industry stalwart Saudi Arabia against the surging U.S. rival, other global players are coping with the pricing fallout, including Canada. Oil companies around the world are being forced to revisit their spending and production plans for 2015, and in the offices towers of downtown Calgary, those changes are already well under way.
I will comment here, rather than on the article which requires subscription.
High cost producers include us in Britain where North Sea oil production requires a high price to make it worthwhile to bring marginal fields into production, notwithstanding the higher density of our oil compared with Arabian light crude. Though if low cost competition saves us from having our towns and cities fracked to death, some might consider it a blessing in disguise.
What a reversal from the 1970’s where low oil prices are now considered to be a ‘problem’.
The place to watch though may be Russia which is in chaos and where sanctions have really bitten, and the policy interest rate is now 17%! A recent visitor tells me how he has noticed that the shop shelves are emptying and shops are increasingly looking like Soviet-era outlets.
I don’t know if the Saudis are interested in damaging North Sea oil, but this situation is clearly damaging both Russia and Iran. Israel, meanwhile, is swimming in natural gas, which may be, besides opposition to the Iranian-financed Hamas radicals, a reason the new Egyptian regime is cooperating with Israeli efforts to stop smuggling into Gaza.
We are reaching price levels which could hurt shale oil here in the US.
“We are reaching price levels which could hurt shale oil here in the US.”
And that is the entire point. If Saudi Arabia can destroy this then they can jack up their prices again.