Two years into a Saudi-initiated price crash that has smashed the budgets of many Opec members and brought some, such as Venezuela, to their knees, there is little end in sight to the downturn.
True, oil prices staged a sharp rally between February and June when they nearly doubled to more than $50. Since then, prices have sagged again, sliding towards $40, amid continuing evidence of a glut of surplus crude building up in brimming storage tanks. Mr al-Falih, the world’s most influential oil man, is no shrinking violet. He has spent decades running Saudi Aramco, the state oil producer that operates Ghawar, the planet’s biggest oilfield.
Nevertheless, it was obvious that he was rattled last week when he announced that Opec oil ministers would hold an informal meeting in Algeria next month to discuss possible action to stabilise prices. [….]
Perhaps more worrying for Mr al-Falih is rising evidence that US output is more resilient than expected. Since Saudi Arabia led Opec’s decision in November 2014 to maintain output and defend market share against higher-cost US shale producers, oil prices have fallen.
For a time, the Saudi strategy succeeded in curbing US output. After peaking at 9.7 million bpd in April 2015, the highest monthly level since 1971, US oil production fell back to 8.9 million bpd in May this year. It appears to have stabilised and the US raised its output forecasts for next year to 8.3 million bpd from 8.2 million bpd.
As an executive at a top US oil services company told me last week, Saudi Arabia’s oil price gambit may end up having a perverse effect. Far from destroying America’s shale industry — as intended — it is instead making it stronger than ever by forcing producers to eke out ever greater cost savings, letting them stay competitive at far lower prices.