Saudi attack on shale oil could backfire

If the recent drop in oil price has been engineered (even in part) by Saudi Arabia as an attempt to put some of the burgeoning shale oil production sites out of business they will need to go much further. A break-even for shale oil production is probably at less than $50 per barrel. In any event the drop so far (25%+ in 6 months) is just the fillip the world economy needs. Saudi Arabia is probably not as vulnerable as other oil producing countries but increasing production to drive down the oil price is a dangerous game which could be self-defeating. Whether the current glut is just due to reduced world (read Chinese) demand and increased shale oil (US) production or has also been exacerbated by increased Saudi production, the oil consumer wins. Consumption will increase – and that will automatically reduce the glut and further increase the production of oil from shale.

If the global economy is to come out of the doldrums it needs the Asian economies – the tigers, the dragon and the elephant – to start prowling in earnest. Increasing consumption in the developing world seems to be one of the most effective ways of stimulating the world economy. It inevitably leads to increased production of consumer goods in the developed countries. And this current step-reduction of oil price could be just the trigger that is needed.

Yesterday the price of crude (WTI) was at about $77 per barrel and that price is sufficient to keep even the small shale oil wells in operation.

crude oil price Nov 2014

crude oil price Nov 2014

 

Tags: , , ,


%d bloggers like this: