You are correct...this is not a market driven event, it is an economic war. They need to break the back of the marginal i.e. high cost new production market in the US. We are not yet energy independent and with this we will not be for a while, perhaps ever. This is not going to be a quick war as it will take time to drive these firms out of existance.
/johnny
It’s not that simple . . . re “the oil is still there and we can get it when we want it”.
1) When the industry folds, soon at these prices, they will screw over all their lenders. They will HAVE to default.
2) They will leave all their stuff behind on the well pads. NoDak will have to find money to clean it up because the small fry will be outright bankrupt.
3) All the workers are not going to put down roots in NoDak, they are going home.
So presto, a year from now with shale shut off and 3 million bpd extracted from global supply, the price goes back to $120. Can the shale work restart?
Probably not. The lenders who financed it all will have just been burned. They will say “not interested” unless they can get 15% or something interest, and may want collateral other than oil even then.
NoDak will have regulations insisting on bigger escrow for cleanup if it all happens again.
The workers will demand relocation packages and higher pay since THEY just got burned.
It will all translate to MUCH higher breakeven prices to get things started again, maybe almost $200/barrel.
Unless.
Unless the industry takes a government bailout of the Fed prints money to bailout the lenders. Then . . . it all works because there will never be capitalism again.
“They need to break the back of the marginal i.e. high cost new production market in the US.”
But their problem is that we will continue to evolve our production methods to further reduce our drilling costs, so they are on a fool’s mission. Remember, a few years ago, we couldn’t do what we are doing now. It’s over for the dune coons.