Who Won The 2016 Oil War?
By Tyler Durden
Submitted by Tsvetana Paraskova via OilPrice.com,
Heading into the New Year with oil prices above US$50, both OPEC and the U.S. shale industry are claiming victory in the latest oil war battle – and both expect to benefit from higher prices, but there can really only be one winner here.
The oil price crash of 2014 has left OPEC scrambling to offset declining revenues while trying to maintain their much-coveted market share. The price bust – the consequence of a shale boom and the pump-at-will policy of that very same OPEC despite the global oil glut – has sent the U.S. shale patch trying to adapt to lower crude prices by slashing investments and costs and scaling back production.
After the failed Doha attempt in April at reaching an agreement, OPEC managed last month to reach a deal on cutting collective output to 32.5 million bpd as of January. It even managed to convince 11 non-OPEC producers – including Russia – to join the global supply reduction with another 558,000 bpd in an attempt to prop up crude oil prices.
Saudi Arabia – OPEC’s largest single producer and de facto leader – saw its oil revenues shrink in the past two years to the point of leading to fiscal deficits, a concept unthinkable three years ago. Having recorded fiscal surpluses of 11.2 percent, 12 percent, and 5.8 percent, respectively in 2011, 2012, and 2013, Saudi Arabia has now been running fiscal deficits, which stood at 3.4 percent in 2014 and a massive 15.9 percent last year, figures by the International Monetary Fund (IMF) show. This year’s deficit is expected at 13 percent. The Saudis are canceling projects worth billions of dollars, cutting perks for civil servants, and raising fuel prices.
Now the OPEC/NON-OPEC deal to cut global supply – if producers stick to promised cuts – would give the Saudis some respite for their heavily-oil-dependent economy.
Still, they believe they won the 2014-2016 oil war with U.S. shale. According to Saudi officials quoted by The Wall Street Journal, the sting to U.S. shale output was worth Saudi Arabia’s and OPEC’s tactics to pump as much as they saw fit.
U.S. shale, on the other hand, had to go through a rough patch of lay-offs, investment cuts, and production declines in the past year and a half.
According to Haynes and Boone’s Oil Patch Bankruptcy Monitor, as many as 105 North American oil and gas producers have filed for bankruptcy since the beginning of 2015. U.S. field production of crude oil was 9.627 million bpd in April 2015, and has dropped to 8.58 million bpd in September of this year, data from the U.S. Energy Information Administration (EIA) shows.
However, in its latest Short-Term Energy Outlook, the EIA said that “oil production, particularly in the United States, has been more resilient in the current oil price environment than had been expected, as reflected in improving financial conditions at oil companies”.
U.S. producers have been adapting to the low prices and are …read more
Source: Who Won The 2016 Oil War?
