Who Really Won The Oil Price War?

Tyler Durden's picture

Authored by Global Risk Insights via OilPrice.com,

The rise in oil prices over the past six months has come as a blessing for the battered U.S. shale producers. Oil prices have risen more than 50 percent since January, giving a glimmer of hope to the U.S. oil industry that the worst of the oil crisis might finally be behind them. Moreover, it forced the shale producers to adapt by reducing production costs and increasing efficiency.

According to data publicized by Reuters, the decline rates of oil wells in the most productive fields in the U.S. – the Permian and Bakken Basins – were almost halved over the past several years. In practice, this means that shale people will get more bang for their buck; due to slower decline of the wells, they will have to drill fewer new wells to sustain output and therefore lower their capital demands.

After months of consecutive falls, the number of rigs has been increasing since May and companies expect additional growth if oil prices remain at $50 levels. In addition, Norwegian energy consultancy Rystad Energy’s newest estimates reveal that the U.S. holds more recoverable oil reserves than Russia or Saudi Arabia. More than 50 percent of reserves belong to unconventional shale oil.

Low oil price has been both a blessing and a curse for the shale industry

The key for the survival of the U.S. shale industry currently lies in its ability to raise money to finance its renewed activity. One of the shale’s weak spots was always its dependency on capital inflow and high level of debt. In the world of high oil prices and lax capital markets this did not matter so much. However, since the oil price crashed two years ago, financing has become the industry’s central problem. Bond sales of U.S. independent energy companies is currently at its lowest level in more than a decade, and the markets are still not convinced enough to devote fresh capital to new energy projects, despite the brighter outlook that came with higher prices of oil.

A breath of fresh air could come from another side though. After the slump in prices, many oil giants such as Exxon and Chevron mothballed expensive offshore and Arctic projects and turned their attention towards cheaper and more feasible shale projects in the United States.

No clear winner of the oil price war

So who has won in this war of oil giants after all? It is probably a tie.

Although the Saudis caused damage to the U.S. shale, they also hit to global oil industry hard, while they managed to preserve their market share, they paid a heavy price in terms of oil revenues. The real question however, is not whether the House of Saud is able to keep oil prices (and consequently U.S. shale production) subdued for a prolonged period of time, but how long they can do it without endangering fiscal and social stability of the Desert Kingdom and other OPEC members. Despite its ambitious Vision 2030 programme, Saudi Arabia will stay dependent on oil income to subsidize its social programmes for many years to come. Achieving restructuring at $50-60 price levels without swift and potentially painful reforms would prove a real challenge to the Saudi regime.

On the other hand, Riyadh has done a huge favor to the U.S. shale industry by forcing it to adapt and change its business philosophy. OPEC will remain an important, and hopefully responsible, factor in oil markets, but it will have to accept the fact that the circumstances have changed over the past five years. Both the ascent of shale oil, and initiatives to reduce global carbon footprint will impose an enormous strain on the Cartel and its members, which are still a long way from having diversified economies.

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johngaltfla's picture

Who won? Russia.

They survived with their NG pipelines into Europe and Assad still in power.

Iran is exporting more now hurting the Saudis.

And Russia increased their contracts and future projects with Asia.

The Saudis spent so much time defending the US Dollar and their market share against the US they missed the big opporturnity to seize control throughout Asia because they are nothing more than camel humping assholes.

peddling-fiction's picture

Yeah right, the Saudi´s call the shots. <sarc>

cheka's picture

who lost?  peak oil dupes

google cartel

hint: to create ARTIFICIAL scarcity

raywolf's picture

Iran + Iraq (now defacto Iran) Almost =  Saudi Production ~ So I'd say Iran won the oil price war with the stroke of a pen. Since they align with Russia. US + Saudis are the losers.

Mr. Universe's picture

I didn't notice that the war was over.

WTFUD's picture

War's perpetual . . . for the greater good! s/c

WTFUD's picture

Yeah sure, everything's rosy in the garden. We can all be friends again. Sheer Hubris.

Son of Loki's picture

List of 59 Oil & Gas Companies Filing for Bankruptcy in 2015/2016


Barrack’s Legacy….Bitches!

You Only Live Twice's picture

The side-effect will be the death of the Petrodollar. This goes far beyond shale. And the damage will start to be noticed in the coming weeks and months.

ACES FULL's picture

Too early to declare a winner. There may not even be a winner at all.

WTFUD's picture

Oil lubricates the wheels of Industry . . . pity there's little of that left to grease.

justin423's picture

Instead of a list of companies that have filed bankruptcy, what companies will be filing bankruptcy of prices fall back to below 30 bucks.
I vote for Apache, but there must be others to buy puts against.

Wahooo's picture

Apache will be purchased, don't cry for them.

bid the soldiers shoot's picture

Supply and Demand won.

The price went down because the Saudis over produced.

It went up when they stopped their overproduction.

Today supply and demand rules, just like always



NotApplicable's picture

Based on demand, oil should be back down at the lows, or lower. The amount of oil sitting in tankers going nowhere is due to bets placed on rising oil prices with super cheap money.

Wall St., backstopped by the Fed is the main thing keeping US shale producers in power. Many of which might've blown up without the aid of the Dallas Fed instructing banks not to trigger default on non-performing loans.

bid the soldiers shoot's picture

It's true.  The price of oil should be lower based on consumption.  

The only explanation for the demand is that some countries must have found more salt caverns for their SORs.

If, as we hear,  there is an infinite supply of oil in the ground, there's probably an infinite supply of salt caverns too.


user2011's picture

I hope the opec suffer, suffer the most.  Saudi has been the one behind the cutrain.   That regime should go down.   They were so cocky and up their own asses.   It is time for them to suffer,  be humble.   Terrorists got funding from oil, then let's shut the oil revenue down.   no money, no terrorist.

froze25's picture

The Saudi Royals are criminals. They and the ones in our country that support them in criminality should be held accountable. 

cheka's picture

nyc owns saudi...and the rest of opec

that was settled in the 70's

pliny the longer's picture

oh wow, the petrodollar.  is that thing still around?

WTFUD's picture

Hanging on for dear life courtesy of the Grim Reaper.

sinbad2's picture

It ain't over till the fat lady sings.

ACES FULL's picture

She will get her nomination next week in Philly.

petroglyph's picture

God dammit you guys, this is Zero Hedge, come on. Why were the shale plays ever ever a good idea? Where did the drillers get the cheap money to finance the stupid shale that starts declining soon after tapping? Ok, where did the banks that collect [shit] interest on those loans get all the money to lend? Fuckin bankers, check.

Ok, 80 dollar oil even makes tar sand viable if you don't mind destroying the entire water resource of Canada for  Warren Buffets tanker train?

Somebody already said it, Saudi's with an independent thought? hahahaha. Sure they are goat fuckers, but who wouldn't? You ever seen the pussy on a goat? Didn't think so. At least they quit fucking the sheep. Fucking price of wool went parabolic. 

Anyway, you see how much oil the US is buying from Russia, right now, today even? KMA, read up a bit on Brezinski's and the Yinon plan and get back to me. How did ole Vlad do with Chinese demand, you think? Caspian fucking NG pipeline right through fucking Afghanistan lubricated with heroin. Fucking shale oil, camel humpers and, Bandar the clown. Fuck guys, this is the Hedge. Quit posting ignorant shit.

LA_Goldbug's picture

Looks like we have more than one person on ZH who understands Geology.

"this means that shale people will get more bang for their buck; due to slower decline of the wells, they will have to drill fewer new wells to sustain output and therefore lower their capital demands."

BS !!!

Shale is what it is, The End of the Line for HC Industry. The worst source of HC you can imagine. There is no optimizing to get MORE. You get what the tight rock gives you and that is it.

Last of the Middle Class's picture

I've had to live with what my tight rock wife will give me for years, so I'm ok with this.

Wahooo's picture

You need to differentiate between companies that issue tons of debt to support production - the MLPs - and companies that actually take care of their balance sheets to support production - the corporations. There are a LOT of the latter in shale oil and they are making great money on great margins.

Spungo's picture

Sometimes you need to cut half your dick off just to spite the other half.

I Write Code's picture

Let's see, 10m barrels/day, 365 days/year, 3.6b barrels/year, they gave away at least $20/barrel, so as near as I can tell they just burned $70b/year, call it a nice even $100b/year.  Either this was done at the behest of the US double-secret government and the US Fed made up for say half of it, or else it was one of the most monumentally stupid actions in human history.  Or both.

cheka's picture

that's a lot of dinosaurs

as if..

haruspicio's picture

This is total nonsense. If Saudi had started the price war without the US's say so, they would be bombed into oblivion. The US does not allow anyone to interfere with its businesses. The aim was to destabilze Russia and Iran it hasn't worked too well.

Ms No's picture

Venezuela and Syria too.  Then there are the smaller countries nobody thinks about much like Yemen.  How can the vultures feast if nothing ever dies? 

just the tip's picture

the saudis wanted to destablize russia.  hussein wanted to kill texas and north dakota.

ISawThatToo's picture
ISawThatToo (not verified) Jul 20, 2016 1:01 AM

Banbait #456

"Who Really Won The Oil Price War?"

The Khazarians.

Was I the 93rd. caller?

Ms No's picture

I am not sure who is winning but the US shale companies that are still operating despite the fact that they are not making any damn money sure seem to be lucking out.  Can't wait to see those bailouts.  The banks/government have doubled down on subsidizing US shale and Saudi somewhere just to play their games and keep those two functioning.


whatamaroon's picture

My MLP's sure have been fucked.

cheka's picture

sell them and load up on crocs...those rubber shoes are a lock

Likedeeler's picture

It is a war for transportation energy. The focus on oil is too narrow.
SA has to take into account that electric cars have become a real threat regarding the fuel economy.
Pricing yourself out of relevance is not an option as the change in infrastructure to electric will be final.

wide angle tree's picture

If the price goes down 50% volume has to go up over 100% for anybody to win. No producer has doubled their output.

The consumers are the winners.

Wahooo's picture

I'll tell you who won, I did. Because I bought the fuckin' dip!

Last of the Middle Class's picture

Flying your lambo to Italy on your highly modified 747 costs quite a bit you dumb fucks. Flow more Oil! It's been over 3000 miles already!

esum's picture