What happens when Saudi Arabia, the world’s swing producer of oil, rejects its traditional market-balancing role? The job falls to American shale oil producers, which, initial data show, appear to be assuming some of the usual Saudi role of cutting production. Data released today by the Austin energy analytics firm Drillinginfo show that some shale producers are reacting to the new economic reality, cutting back on drilling and new production in response to plummeting oil prices.
Notably, well drilling has dropped in North Dakota’s Bakken shale and Texas’ Permian Basin, and estimates of new oil production are falling in similar fashion. However, in the country’s most prolific, lower-cost shale acreage, production continues virtually unaffected. Full details are analyzed in our Baker Institute paper. The American shale sector is now revealing itself as a nimble and price-responsive producer, performing exactly as Saudi oil minister Ali al-Naimi hoped it would when he told the world that high-cost oil producers should relinquish their share of the market to the low-cost crude produced by OPEC.
Since the 1970s, the Saudis have usually acted to balance markets and calm volatile prices by twisting a few valves and either raising or cutting production. On November 27, when the Saudis said “No” to expectations of cutting output, the price fell sharply. By January, a barrel cost half as much as it did in June. As a result, new oil production in some US shale plays appears to have been curtailed, especially since late November.
Notably, well drilling has dropped in North Dakota’s Bakken shale and Texas’ Permian Basin, and estimates of new oil production are falling in similar fashion. However, in the country’s most prolific, lower-cost shale acreage, production continues virtually unaffected. Full details are analyzed in our Baker Institute paper. The American shale sector is now revealing itself as a nimble and price-responsive producer, performing exactly as Saudi oil minister Ali al-Naimi hoped it would when he told the world that high-cost oil producers should relinquish their share of the market to the low-cost crude produced by OPEC.
Since the 1970s, the Saudis have usually acted to balance markets and calm volatile prices by twisting a few valves and either raising or cutting production. On November 27, when the Saudis said “No” to expectations of cutting output, the price fell sharply. By January, a barrel cost half as much as it did in June. As a result, new oil production in some US shale plays appears to have been curtailed, especially since late November.
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