Saudi Arabia’s attempt to put American shale drillers out of business by driving the oil price lower may not work — because costs are falling, too.
Oil prices have halved to less than $50 a barrel in the past six months as Saudi Arabia maintains production levels despite a global oversupply of crude.
The price rout has left some American shale oil companies, whose average break-even price is $80, struggling to survive. However, costs are expected to fall by up to 30 per cent in the United States this year, which could give explorers a reprieve.
According to Wood Mackenzie, an energy consultancy, if oil prices stay at present levels for the next six months, that break-even price would fall by between $10 and $15 a barrel. This is not enough to make the more expensive projects viable, but cheaper projects in the Eagle Ford and Permian shale oilfields in Texas would become economic. According to RBC Capital Markets, the costs of projects in these fields last year ranged from $62 to $87 a barrel for Eagle Ford and $54 to $78 for the Permian field.