OPEC’s Plan to Squeeze out U.S. Shale: Is it Working?

by Elizabeth Alford on November 6, 2015

Last Thanksgiving, OPEC tried to force the hand of U.S. shale oil when they announced they would not decrease production in order to curb the falling price of crude.

Related: OPEC Challenges Shale Oil Drillers

It’s been almost a year since OPEC initiated this game of ‘chicken’, which was intended to to force U.S. shale drillers to fold in the face of falling profits and the year has been brutal.

Immediate response to OPEC’s announcement included plunging energy stocks and crude oil prices and a resolve from U.S. producers to dig in and ride it out. Oil prices have remained unstable all year and have remained at less than 45% of their peak value of June 2014. On Tuesday, Bloomberg reported that WTI crude was at $46.49, while Brent crude stood at $48.79, down from $107.26 for WTI on June 20, and $115.06 for Brent on June 19.

The prolonged slump in oil prices continues to take its toll. U.S. shale oil producers have reported steep improvements in the productivity of the rigs they use and the wells they drill, but even this cannot save them from the financial constraints they face.

  • In the first half of 2015, U.S. shale producers lost more than $30 billion
  • Lower prices have forced many oil companies to cut their workforces. Employment in the oil and gas sector has fallen by 5% in since November 2014, in stark contrast to the 5.1% improvement in total U.S. employment. Swift Worldwide Resources reports that more than 200,000 workers in the global oil and gas industry may now have lost their jobs following the collapse in crude prices.
  • Bankruptcies and restructuring are on the rise with almost two dozen oil & gas companies filing this year.
  •  The EIA reported that U.S. oil production fell in May and June, with some analyst predicting continued drops, as companies are unable to pay for more drilling and well completions.

Bloomberg is reporting that OPEC’s plan “appears to be working” and speculates that losses will accelerate next year.

“OPEC’s fortunes will improve as the U.S. declines, with the IEA predicting demand for the group’s crude climbing to 31.1 million barrels a day next year from 29.3 million in 2014.”

Analysts discuss OPEC’s strategy in this short video clip.

 

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