• 4 minutes Trump has changed into a World Leader
  • 7 minutes China's Economy and Subsequent Energy Demand To Decelerate Sharply Through 2024
  • 8 minutes Indonesia Stands Up to China. Will Japan Help?
  • 10 minutes US Shale: Technology
  • 13 minutes Which emissions are worse?: Cows vs. Keystone Pipeline
  • 14 minutes What's the Endgame Here?
  • 17 minutes Shale Oil Fiasco
  • 21 mins We're freezing! Isn't it great? The carbon tax must be working!
  • 1 min Boris Johnson taken decision about 5G Huawei ban by delay (fait accompli method)
  • 15 hours Beijing Must Face Reality That Taiwan is Independent
  • 8 mins Prototype Haliade X 12MW turbine starts operating in Rotterdam
  • 19 mins Phase One trade deal, for China it is all about technology war
  • 9 hours Might be Time for NG Producers to Find New Career
  • 18 hours Turkey Muscles-In on Israel-Greece-Cyprus EastMed Gas Pipeline Deal. Erdogan Still Dreaming of Ottoman Empire II.
  • 19 mins Environmentalists demand oil and gas companies *IN THE USA AND CANADA* reduce emissions to address climate change
  • 1 day Trump capitulated
Alt Text

The Single Biggest Factor In Oil This Week

China has been the key…

Alt Text

Barclays: Global Oil Demand Is Set To Jump In 2020

Barclays expects crude oil demand…

Alt Text

How Will The Libyan Oil War End?

The war for Libya’s oil…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

Saudi Oil Minister Shrugs At U.S. Shale Recovery

When OPEC decided not to cap output in 2014, flooding the market with oil, it was trying to drive higher-cost producers – most notably U.S. shale – out of profitability range. It succeeded in contributing to the oil glut, collapsing the oil prices, and hurting many U.S. shale plays and producers who were waiting for better times before returning to activity.

However, this strategy spectacularly backfired on OPEC’s biggest producer and de facto leader Saudi Arabia, which started to book budget deficits amid the low oil prices, with deficit an unthinkable concept five years ago.

The recent U-turn in OPEC and Saudi strategy – cutting back output to try to draw down oversupply and prop up oil prices – comes with a caveat: at higher oil prices, higher-cost producers - U.S. shale in particular – have more economic reasons and profit-making motivation to increase drilling and M&A activity.

And the U.S. producers are already doing it, recent figures and deals show. They survived thirty-dollar oil, and are emerging leaner, more efficient, and able to respond more quickly to oil price fluctuations. They proved they were and are “more resilient to low oil prices than many analysts had anticipated,” as the EIA said as early as in August last year.

Meanwhile, Saudi Arabia seems unfazed from this possible rebound in U.S. shale, judging from one of the latest comments by its Oil Minister Khalid al-Falih. The Saudis still believe (or at least al-Falih says so) that current oil prices at around $50 are still not enough to herald a significant rebound of US shale production.

At the World Economic Forum in Davos earlier this week, al-Falih said that he expects costs for the U.S. drillers to go up in the long term, after the “supply industry has been decimated”. The balancing of the market in 2017 will also include inflation on the cost of doing business, the Saudi oil minister said. In addition, North America has tapped the most prolific plays so far, but as “demand goes, they would go to the more expensive, more difficult, less prolific areas of the shale and I think they will find that they need higher prices,” al-Falih said. Related: What Stopped The Oil Rally Dead In Its Tracks?

Speaking to CNNMoney's John Defterios, the Saudi oil minister said:

“I don’t lose sleep that shale is going to come and overwhelm us. I don’t think it will.”

While the Saudi official is sleeping tight, tight oil production in the U.S. is recovering, estimates by various organizations show. One tight oil play in particular has seen a lot of activity and is expected to continue its upward trend: the Permian.

Earlier this week Exxon Mobil said it would pay up to $US6.6 billion to more than double its acreage in the superstar shale area. This came on top of last year’s deals in the Permian, which helped the U.S. oil and gas mergers and acquisitions tally soar to $69 billion in 2016. The industry has been quick to adapt and secure primary drilling sites profitable at US$50 oil and buy existing production, Houston-based oil and gas research firm PLS Inc. has said in a report.

Energy consultancy Wood Mackenzie said in an analysis last week that the Permian Basin attracted almost one-quarter of the global M&A spend 2016, and dubbed the rush for the basin ‘Permania’. The Permian attracted $20 billion in deals last year, with investors lured by “breakevens as low as $40 per barrel, stacked pay potential, large volumes, upwardly trending well economics and the flexibility to adapt to a changing market”, Wood Mac said.

Permian’s oil production is on the rise and the combined crude production in the seven most prolific areas in the U.S. is expected to increase by 41,000 bpd from January to stand at 4.748 million bpd in February, the EIA said in its latest Drilling Productivity Report. Output in the Permian alone is seen rising by 53,000 bpd to come in at 2.180 million bpd. Related: OPEC Head: Oil Inventories Already Dropping From High Levels

The higher oil prices from the past two months – stoked by OPEC’s deal and Saudi comments, among others – are one of the reasons for the recovery of U.S. production, which the EIA sees will average 9 million bpd this year, or 110,000 bpd more than last year. The other is the more efficient industry that has emerged from the lower-for-longer price environment.

“Whether it be shorter drilling times or larger amounts of oil produced per well, there is no doubt that U.S. shale industry has emerged from the $30/bbl oil world we lived in a year ago much leaner and fitter,” the International Energy Agency (IEA) said in its January Oil Market Report on Thursday.

Saudi Arabia’s oilmen may not lose sleep over U.S. shale resurgence, but it looks like they may have underestimated the shale resilience yet again.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage




Leave a comment
  • Kr55 on January 22 2017 said:
    Well, I guess he does have some idea of what he's talking about. Saudi's bought a lot of shale plays and technology at the bargain basement prices they created by starting the price war. They have their finger on the pulse along with everyone else in the trenches.
  • peter novak on January 22 2017 said:
    It is a simple case of brain over matter, where Saudis and OPEC represent row matter . . . . .

    Furthermore, its not all about the US. Canada, Russia, China and even Argentina are ramping up shale oil production.

    Anyway, the Saudis should be worried because the oil is not likely to get over $60, and it will likely crash, as oil tourists will head for the exits augmented by speculative short selling, while most of the US producers are hedged, having sold futures.
  • Christian LeBlanc on January 23 2017 said:
    S.A. needs $79 oil to break even fiscally. So it's irrelevant what al-Falih thinks about how much oil the shale patch will produce at the current mid-50s price. It's not near good enough for the Saudis to make ends meet.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play