Fitch Credit Ratings has declared that the profitable doubling of U.S. oil drilling over the last 9 months means the reemerging U.S. shale boom is a potent threat to Saudi Arabia — despite the Saudis declaring a price war in 2014.
According to the Fitch report released on March 7, “The recovery in US drilling activity will drive up shale oil production in the second half of 2017, offsetting a portion of recent oil price gains.” The rating agency’s comment follows an effort by Saudi Arabia that began in October 2014 to drive the price of oil down from over $100 a barrel in an effort to kill the U.S. shale boom.
Fitch cited the Baker Hughes U.S. crude oil drilling rig count that fell last year to 316 for the week ending on May 27, the lowest level since the 1940s, but has since jumped 93 percent to 609 on March 3. Fitch said that due to booming U.S. production, “We therefore expect average oil prices for the year to be below those in January and February.”
Breitbart News reported that Saudi Arabia was a prime beneficiary from the 1998 to 2014 commodity “supercycle” that saw the oil price rise by 1,062 percent to a high of $116 a barrel. The resulting tsunami of cash flow allowed the nation of 31 million, where only 5.5 million have jobs, to accumulate $737 billion in foreign exchange reserves, while fully subsidizing a Western upper-middle-class lifestyle for the population.
Despite Saudi Arabia needing a price of $90 per barrel to fund its lavish domestic entitlements, the kingdom in mid-2014 spiked production by 2 million barrels a day to destroy the U.S. oil fracking industry — which, based on a $90 a barrel breakeven cost, had more than doubled U.S. crude oil production to 9.3 million barrels a day.
According to George Friedman of Geopolitical Futures, the price war cost Saudi Arabia at least $198 billion though January 2017, and created a worldwide surplus that drove the price oil down to an 18-year low of $23 a barrel in January 2016. Even after modest production cutbacks since then, the price only partially recovered, to about $53.18 a barrel.
The Saudi predatory attack caused a large number of bankruptcies across the U.S. oil patch and sent U.S. crude oil production skidding to 8.4 million barrels a day by mid-2016. But instead of the American shale boom going bust, the U.S. Energy Information Agency reported that domestic crude oil production hit just 9.1 million barrel a day.
Peter Zeihan, in his new book The Absent Superpower, reveals that a combination of 40 percent cost-cutting, plus technological advances that quadrupled the amount of oil recovered from each well drilled, have together slashed the breakeven cost in the four largest “shale fracking plays” to about $40 a barrel. He predicts that the breakeven could drop to $25 a barrel by 2019, making U.S. shale producers the lowest cost oil producers on the planet.
With oil trading in the $50 range, and Saudi Arabia still running a multi-billion dollar monthly deficit, Geopolitical Futures reported that King Salman Bin Abdulaziz announced that the Saudi Aramco state-owned oil monopoly will go public in 2018.
With what Geopolitical Futures refers to as harsh economic realities of negative cash flow hammering Saudi Arabia’s solvency, King Salman has been forced to go, keffiyeh in hand (along with a 1,500-strong entourage and 908,000 lbs. of luggage), on a six-nation Asian tour that includes stops in Malaysia, Brunei, Maldives, Indonesia, China, and Japan to try drum up demand for the price of Saudi Aramco shares.
The world standard Brent Crude Oil price fell $2.81, or 5 percent, to $53.11 a barrel on the London ICE Futures Europe Exchange on March 8, its lowest close since Dec. 7.
Frank Adam Said:
Canada is the world’s largest potash producer and exporter. The bulk of the country’s potash industry is located in Saskatchewan.
Dead Sea Works, a business unit of ICL Fertilizers, is the world’s seventh largest producer and supplier of potash products, as well as a broad range of chemical products, including magnesium chloride
If only there are oil shale deposits yet to be found, in southern Lebanon. Good reason to relocate all those rockets and whatnot
KSA has a genuine dilemma, because, it does have 31 million citizens.
Awesome. In a hundred years there will be nothing left of those countries but desert. They’ve pissed it all away. Now to keep them from coming over here and ruining our world.
This has been a very informative article, along with the comments (except Frank Adam’s fears of SF and LA falling into the sea — time to get ready to tie up the boat in Idaho?). I agree with him, that the prosect of Saudis actually working for a living is amazing.
I am mostly interested in Saudi Arabia’s future as a possible de facto partner of Israel in the surrogate war with Iran. Lately, the kingdom has been ineffective in fighting the Houthis in Yemen, and the Assad regime in Syria. Being currently on the outs with Egypt, their only ally in the region is the great “bruised reed” of the Middle East, namely Turkey. That country’s President Erdogan goes through changes of allies as often as I go through changes of underwear; so the Saudis are becoming increasingly isolated.
The last I heard, Iran has been trying to bury the scimitar and bring the Guardian of the Two Mosques into its fold. While I don’t imagine there is a great chance of that happening, it might be good for Israel to at least be nice to its near-neighbor, and help them stay out of a potentially disastrous entanglement.
Lot’s of speculation. That’s the Middle East for you.
We also need as much alternative energy as possible or one day the Eastern seaboard will flood ditto San F and LA.
Meanwhile Saudi also sits on massive phosphates and potash deposits needed to keep up World food production but I doubt if it runs a the sort of prices that oil and gas do. The Arabs might actually have to work! shock! horror!
Time for America & ISRAEL to become exporters of oil. Back Zion Oil Company and their efforts to make ISRAEL an exporter of oil. This is one way to stop the moslum World in its tracks. No money, no money for terrorism !
With the surge in U.S. oil production we might possibly achieve energy independence. With a big assist from President Trump. Then the Saudis can drown in their oil.
Once upon a time, the US was the purveyor of funds to the ME oilgarchy! The Islamists used this “manne celeste” to try to Islamize the world and promote antisemitism.
It is high time to break the back of this oilgarchy so nefarious to humanity.