The Saudi decision to let oil prices fall further has led some observers to suggest that they have abandoned their traditional position as swing producer allowing the US to take over that role because of its increasing shale oil production. Although shale oil is more expensive to extract, its not as expensive as often thought, with the cost in the $40s/barrel rather than over the $80/barrel mark.
“The question is, what price level will be low enough to slow U.S. production growth?” Torbjoern Kjus, an analyst at DNB ASA, Norway’s biggest bank, said by phone. “What price will get U.S. growth to slow to 500,000 barrels a day from this year’s rate of 1.4 million barrels?”
Only about 4% of U.S. shale production needs $80 or more to be profitable, according to the Paris-based International Energy Agency. Most production in the Bakken formation, one of the main drivers of shale oil output, remains profitable at or below $42 a barrel, the IEA estimates. The agency expects U.S. supply to increase by almost 1 million barrels a day next year, with increasing flows to international markets.”
This led to the onset of a new era in the history of oil production, a 4th era with a US swing producer.
Perhaps. Saudi Arabia still has far more surplus capacity, and production costs at or below $10/barrel…..
Its also worth noting that many have also argued that the Saudi’s willingness to accept low oil prices has been driven by their desire to punish Iran, which traditionally has wanted higher prices. well today the Iranian government and the Iraqi government -which is very close Tehran- cooperated with Saudis by cutting their prices to Asian markets.