THAT WOULD BE NICE: Oil Could Fall To $40 If OPEC Abandons Its Deal.
Siluanov said that lower oil prices would then have a negative impact on U.S. oil production, an argument that was also made as far back as late 2014 when the Saudis sought to drive U.S. producers out of business by opening the oil production spigots in spite of an already flooded global oil market.
“(If the deal is abandoned) the oil prices will go down, then the new investments will shrink, American output will be lower because the production cost for shale oil is higher than for traditional output.” He said that prices could drop to $40 per barrel or even less for up to one full year, adding that there had been no decision on the deal yet and he did not know whether OPEC countries would be happy with this scenario.
Siluanov’s comments aren’t without precedent. Russia has hinted before that it could start to pump more oil, which would in effect cause the world’s second-largest oil producer to nullify its participation in the OPEC+ oil cut deal put in place at the start of the year to remove 1.2 million b/d of oil from the market for six months, with a review period after this time.
As American frackers keep improving efficiencies, the market price they can bear and still return a profit continues to decline. ExxonMobile is eyeing getting productions costs down in the Permian to $15 per barrel, and unlike most OPEC producers (and Russia), our domestic producers are private and don’t have as their primary mission filling the State’s coffers.
Unlike 2014, the last time the Saudis tried to cut off American frackers by opening their pumps wide, now domestic producers are much better hedged financially against another big price drop.
Perhaps the real indicator of OPEC/Russia’s desperation is that this is the first time in my memory that they’ve gone this long without cheating like mad on their production quotas.
Things like that make me think that Siluanov is mostly bluffing.
