OPEC puts the squeeze on US shale oil producers

January 19:

The steep fall in world crude oil prices has increased pressure on some crude oil drillers in the United States, causing them to take a number of oil rigs out of service.

The Organization of Petroleum Exporting Countries (OPEC), which pumps about 40% of the world’s oil, agreed to maintain its production target at 30 million barrels a day at a November 27 meeting in Vienna. The oil cartel is wagering that US shale drillers will be first to curb output as prices drop.

“This policy of Saudi Arabia is really to challenge non-OPEC oil producers, including shale oil producers in the US,” London-based energy analyst Manouchehr Takin told New Europe.

“There are some producers for which the current capital expenditure is high, the operating cost is high. Shale oil producers fall in this category. A shale oil well can produce for a year or two but then they have to drill another well or they have to do some more investment in that well, do more fracking, so it’s not just the running, operating cost,” Takin said. “And those companies the next time which they have to drill, they will not drill because they realise that the price will not make it worthwhile,” he added.

On January 19, Brent for March settlement was down 37 cents at $49.80 a barrel on the London-based ICE Futures Europe exchange.

According to Bloomberg reports, US oil rig count has fallen by 209 since December 5, 2014, the steepest six-week decline since Baker Hughes Inc. (BHI) began tracking the data in July 1987. OPEC is winning the fight for market share and slowing the growth that has propelled US oil production to the highest in at least three decades.

Meanwhile, production from OPEC’s 12 members increased by 140,000 barrels a day in December, led by a jump of 285,100 a day in Iraq, which plans to double exports within weeks from its northern Kirkuk oil fields.

In the US, an oil boom has been prompted by the implementation of horizontal drilling and hydraulic fracturing that’s unlocked shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota. There are expectations that US shale drillers will be most exposed to tumbling prices as demand falls.

Source: www.neurope.eu/article/opec-puts-squeeze-us-shale-oil-producers?

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