U.S. Shale Ready To Fire Back In The Oil Price War

U.S. shale oil companies have started a lobbying campaign with Washington to take a more aggressive stance against Russia and Saudi Arabia to force them to cut oil production, the Financial Times has reported, citing industry sources.

Among the measures, according to the sources, is the proposal to introduce tariffs on Saudi oil imports and blocking shipments to the massive Motiva refinery, which is majority-owned and operated by Saudi Aramco. One source said that the latter is the idea that has been gaining the most traction. 

Motiva is the largest oil refinery in the United States.

The campaign has taken on former Energy Secretary Rick Perry to help, according to the FT report, and his participation is already making a difference, one industry source has said.

U.S. shale producers were among the hardest-hit players in the industry when Saudi Arabia launched its game of chicken with Russia announcing it would increase oil supply to 12.3 million bpd this month, boosting its production capacity to 13 million bpd. Yet now both Riyadh and Moscow seem to be reconsidering.

Russia said it would not increase production by the 300,000-500,000 bpd it previously said it could add to its average daily from April, while Riyadh has called for an OPEC meeting to discuss next moves as oil price slumped below $30 a barrel.

Yesterday, the benchmarks got a breather after, in a tweet, President Trump said he hoped and expected Russia and Saudi Arabia would reach an agreement to collectively cut between 10 and 15 million bpd. While it is highly unlikely the two would agree to such a massive cut without anyone else - notably the U.S. - taking part, too, the tide may be changing. Related: Iraq On The Brink Of Civil War As Oil Revenues Evaporate

The current oil price is too low even for Russia, who claims to have the most favorable production cost/breakeven ratio among the world’s top three producers. Saudi Arabia, while the lowest-cost producer, needs oil at more than $80 to break even in terms of its budget, while U.S. shale producers have breakevens more than double the current price of WTI. The top Russian companies, on the other hand, could remain profitable even with Urals at $15 thanks to a free-floating currency and a flexible tax regime. Russia’s budget for 2020 is based on an oil price of a little over $42 a barrel.

The Wall Street Journal has reported, citing OPEC officials, that the cartel and Russia would be meeting Monday to discuss prices and are thinking of inviting U.S. producers to the talks.

By Irina Slav for Oilprice.com

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