Both Saudi Arabia and U.S. oil companies that use hydraulic fracturing are claiming victory in a two-year war for control of the global oil market.
U.S. fracking companies claim OPEC’s low-price strategy didn’t kill off production, and instead, forced the oil cartel to cut costs. U.S. oil production levels remained relatively constant despite low oil prices and declining investment.
The Saudis disagree, and point out OPEC has regained market-share from western oil producers. OPEC’s percentage of global oil production has grown. The cartel now provides almost 42 percent of the world’s oil, up from 40 percent in 2014.
“Definitely, the U.S. is going to win the next two years because OPEC is cutting and U.S. shale is taking off,” Scott Sheffield, CEO of the fracking firm Pioneer Natural Resources Co., told The Wall Street Journal.
“The OPEC strategy—they’ve won. They wanted market share, and they took it,” countered Dan Pickering, head of the energy investment firm Tudor, Pickering, Holt & Co., in an interview with The Wall Street Journal.
OPEC slashed oil production to raise the price because depressed prices hurt the public finances of countries like Russia, Venezuela and Saudi Arabia. The U.S. surpassed Russia’s oil production last year and is now the world’s largest and fastest-growing producer of oil and natural gas. This posed a major threat to OPEC’s market share.
OPEC had refused to let the price of oil increase since 2014, hoping this would bankrupt and kill off new competition from U.S.-based fracking. Two years of shrinking profits and mass layoffs, which claimed 100,000 jobs as companies were forced to scale back output to remain financially viable at low oil prices, are at an end.
And yet, three OPEC member nations won’t be complying with the group’s demands to lower oil production. Other OPEC nations, such as Venezuela, are facing economic collapse, which is partially due to cheap oil. Venezuela was even forced to import U.S. oil.
Most OPEC countries and other major producers like Russia require the price of oil to be above $80 a barrel to balance their national budgets. Industry experts believe that most new American fracking will be profitable at around $40 a barrel. Such a setup could means that the price of oil will be permanently locked in at prices favorable to American fracking.
Fracking producers hope that major U.S. oil companies, such as ExxonMobil and Royal Dutch Shell will embrace fracking as well. Both companies announced in August they’re investing $20 billion into fracking technology.
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