https://www.wsj.com/articles/how-american-shale-drillers-flipped-opecs-script-1495618203
How American Shale Drillers Flipped OPEC’s Script
U.S. output has surged since production deal, leaving cartel with little choice but to extend cuts
By Lynn Cook
May 24, 2017 5:30 a.m. ET
OPEC’s back is against the wall and U.S. oil producers put it there.
When the cartel reached a landmark deal in November to curtail production to bolster crude prices, it was betting U.S. shale drillers would be too weak to step in and fill the void. It was wrong.
As it turns out for OPEC, competing against American shale oil really means competing against Wall Street and its financial engineering—a prospect that has bedeviled government-run oil companies from Saudi Arabia to Nigeria.
U.S. oil output has surged since the OPEC deal, and is now on pace to exceed 9.9 million barrels a day in 2018, a record, according to the U.S. Energy Information Administration. Hopes dashed, OPEC now has little choice but to extend the production cuts when the group meets in Vienna on Thursday in an attempt to ease the global oil glut.
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They could extend production cuts......Or...they could increase production and drive oil back down to $25/barrel.
But I suppose that also hurts them pretty badly. OPEC is really between a rock and a hard place.
I think it is irrelevant what the Sauds do with their own production. The price of oil is stuck in a range around $50 which must decline so long as America does not throw chains back on the domestic industry. That is the price where there is a balance right now between the marginal cost of pumping oil which varies tremendously from one formation to another. As the price starts to bump up, more wells come back on line. As it declines, wells are shut down and “shut down” does not mean now what it meant a couple of decades ago. Shutting down used to mean that re opening a well was a tremendous cost in itself and thus rising prices did not elicit immediate increase of production. Now it is more like a wall switch. The cost of turning a well back on is much less than it was so price level changes have a much more immediate effect on production.