Thanks to the shale boom and fracking, U.S. oil producers are making life increasingly difficult for OPEC and that organization’s largest producer – Saudi Arabia, as Shoebat.com has reported. The rise in U.S. production is forcing OPEC nations to cut back on production rather than sell below breakeven.
According to Bloomberg:
Then there’s Saudi Arabia, which is still at the wheel of OPEC as its top producer. The Saudis still enjoy some of the lowest production costs in the world, so they can sustain a much lower price and still not worry about financing themselves. That’s a luxury many OPEC members don’t have. Venezuela, Iran, Iraq, Libya, and even Russia all need oil prices higher than $100 a barrel to keep their deficits in check.
Who could have seen this coming? With oil prices holding at 4-year lows, heavily pressuring around half of US shale production economics, the “secret” US deal (see here and here) with Saudi Arabia to crush Russia via oil over-supply in a slumping demand world appears to be backfiring rapidly for John Kerry and his strategery team. Capable of withstanding considerably lower prices for longer, Saudi Arabia’s oil minister Ali al-Naimi proclaimed “no one should cut production and the market will stabilize itself,” adding rather ominously (for the US economy and HY default rates), “Why should Saudi Arabia cut? The U.S. is a big producer too now. Should they cut?”