The collapse in global oil prices may be OPEC’s attempt to squeeze U.S. shale producers between declining supplies and high debt. And in this post, financial analyst Deborah Lawrence says the international cartel may win the standoff.
“Faced with the prospect of losing market share to tight oil producers in the U.S., OPEC has simply taken the most prudent business decision. Keep the taps open,” Lawrence writes. “Why? Because U.S. tight oil producers really can’t compete in the global markets in spite of all the hyperbole. Their costs are just too high. And OPEC knows this.”
While U.S. producers need a global oil price of at least $80 per barrel to break even, Saudi Arabia produces crude at an estimated $10 to $25 per barrel. Which could explain why shale operators in the Bakken and Eagle Ford regions moved “a little too quickly” to cut back their 2015 capital expenditures. “Their desperation is showing,” Lawrence writes. “They know that OPEC can keep prices low for an extended period of time, which will have dire consequences for companies that have been much too willing to assume large amounts of debt on wells that had marginal production profiles.” (h/t Jeffrey Doyle via The Energy Collective for pointing us to this story)