by WorldTribune Staff, June 24, 2016
Saudi Arabia has declared its war on U.S. shale (frackers) is over. Now the question is: Who won?
Saudi Energy Minister Khalid Al-Falih said that since the worldwide oil glut has vanished, Saudi’s strategy of flooding the global market to try to put American drillers out of business is no longer necessary.
“We are out of it,” Falih told the Houston Chronicle. “The oversupply has disappeared. We just have to carry the overhang of inventory for a while until the system works it out.”
“The question now is how fast you will work off the global inventory overhang,” Falih said. “That will remain to put a cap on the rate at which oil prices recover. We just have to wait for the second half of the year and next year to see how that works out.”
Analysts say the resurgence of U.S. oil drilling after 21 months of decline “suggests that Saudi and the U.S. fought to a draw.”
The Saudis started the war on U.S. shale in June 2014 after a 4-million-barrel-a-day surge in U.S. shale oil production. The surge sent Saudi into a panic as OPEC’s four-decade-long influence over global oil prices was in decline.
Riyadh decided to outlast U.S. producers by flooding the market and forcing down oil prices. When Russia did the same, oil prices plunged below $27 a barrel by March 2015, down from an average over $100 a barrel from 2011 through 2014.
With prices rebounding to over $50 a barrel, more U.S. oil appears to be on the way. In a June 22 note to clients, Citi analyst Edward Morse reported that there are “nearly 2,000 drilled but not completely constructed wells in the U.S. oil patch.”
Morse forecasts that those wells could bring U.S. production back to 9 million barrels a day by this time next year.