A few posts back I pointed to the geo-strategic poker match being played by the Saudis and the Americans. The price of oil has dropped hugely, mostly as a result of a global lack of demand but also due to the USA dropping further and further out of the market as they satisfy their domestic demand from the shale oil deposits in their own backyard. I suggested that the aim of the Saudis is to facilitate the price drop until it destroys America's shale oil industry. However, courtesy of 'SoD' who sent me the link, 'A E-P' in The Telegraph suggests that the Saudi's bluff can, and probably will, be called:
Saudi Arabia and the core Opec states are taking an immense political gamble by letting crude oil prices crash to $66 a barrel, if their aim is to shake out the weakest shale producers in the US. A deep slump in prices might equally heighten geostrategic turmoil across the broader Middle East and boomerang against the Gulf’s petro-sheikhdoms before it inflicts a knock-out blow on US rivals.
I confess my error in thinking that much below $70 a barrel and the American shale oil deveopers would be in severe financial trouble. 'It ain't necessarily so', according to 'A E-P':
US producers have locked in higher prices through derivatives contracts. Noble Energy and Devon Energy have both hedged over three-quarters of their output for 2015.
Pioneer Natural Resources said it has options through 2016 covering two-thirds of its likely production. “We can produce down to $50 a barrel,” said Harold Hamm, from Continental Resources. The International Energy Agency said most of North Dakota’s vast Bakken field “remains profitable at or below $42 per barrel. The break-even price in McKenzie County, the most productive county in the state, is only $28 per barrel.”
Efficiency is improving and drillers are switching to lower-cost spots, confronting Opec with a moving target. “The (price) floor is falling and may not be nearly as firm as the Saudi view assumes,” said Citigroup.
In the meantime, of course, a whole swathe of lesser oil producing nations across North Africa, West Africa and South America will quickly be reduced basket-case conditions, and those of them already under attack from Islamist fanatics will soon lack the means to defend themselves.
Oh dear, more "interesting times"!
