US shale producers seeking revenge for defeat in oil price war
The US had to admit its defeat by Saudi Arabia in the oil price war, though American shale oil producers suffered to a less extent than Russian drillers. Now the US is seeking revenge. American shale oil companies are determined to step up output rates instead of switching oil rigs to a sleeping mode. This decision comes as no surprise. As countries around the world are cautiously reopening their economies, this revives global demand for energy. Will the fragile recovery of the global economy cope with a flood of shale oil? Time will tell.
US shale companies were badly hurt by a slump in oil prices in spring 2020 amid the demand-killing coronavirus pandemic. Small and mid-sized drillers took the brunt of the oil price war. They were about to declare bankruptcy because the production cost of shale oil is nearly $40 a barrel. In fact, Saudi Arabia poached large buyers of American shale oil with deep discounts for May deliveries. However, Riyadh is unwilling to offer generous discounts forever. As soon as oil quotes had regained footing, US oil companies found an excuse to scale up their production rates. Certainly, setting up new rigs is out of the question amid the current benchmark prices. At the same time, US drillers grabbed the opportunity to launch available facilities at full capacity.
According to Reuters’ estimates, US producers could speed up shale output rates to 500,000 barrels per day by the end of July. Amid a robust revival of shale production in the US, Russia and Saudi Arabia, the top oil exporters, will find it hard to convince their allies to stick to their commitments on record oil production cuts under OPEC+ pact, IHS Markit analysts share their outlook for the oil market.