Oil Shale War
Industry

Saudis Declare Victory in Oil-Shale War

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From all appearances, a ceasefire in the battle between Saudi Arabian oil production and the American shale oil industry has been declared. The country’s energy minister, Khalid Al-Falih, indicated that because the oil glut that effectively collapsed the market in mid-2014 has disappeared, it’s a clear sign that prices will be rising again back to their previous lofty levels.

The shale market, which has been greatly expanded within much of the last decade, helped start the plunge of a barrel of oil. At the time the battle began, the price of oil was in the range of $107. By the time the price had bottomed out, it had dropped to $27, with the busy summer months having boosted that price back near $50 per barrel.

Despite the slide, Saudi Arabia chose to continue pumping oil. One reason was that the country could still make a profit as long as the price didn’t drop below $20 a barrel. Another factor was the need to accommodate increased demand from areas like India and China. However, the real strategy was to drive as many of the shale companies out of business as possible.

The strategy became especially evident in November 2014, when Saudi Arabia refused to make production cuts to boost oil prices that were still in the free-fall phase.

To a certain extent, the plan worked as 80 companies have since gone out of business. Still, there currently are no signs that the barrel price will reach triple figures again anytime soon.

While waiting for that, the Saudis must also deal with concepts like electric cars that are specifically geared toward eliminating or least reducing the need for oil. The country’s answer is known as Saudi Vision 2030, which seeks to triple the non-oil exports by that year.

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