Inside OPEC Room, Naimi Declares Price War on U.S. Shale Oil

by Alex Lawler, Amena Bakr and Dmitry Zhdannikov (Reuters) Saudi Arabia's oil minister told fellow OPEC members they must combat the U.S. shale oil boom, arguing against cutting crude output in order to depress prices and undermine the profitability of North American producers.
Ali al-Naimi won the argument at Thursday's meeting, against the wishes of ministers from OPEC's poorer members such asVenezuela, Iran and Algeria which had wanted to cut production to reverse a rapid fall in oil prices.
They were not prepared to offer big cuts themselves, and, choosing not to clash with the Saudis and their rich Gulf allies, ultimately yielded to Naimi's pressure.
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Secretary General Abdullah al-Badri effectively confirmed OPEC was entering a battle for market share. Asked on Thursday if the organization had a answer to rising U.S. production, he said: "We answered. We keep the same production. There is an answer here".
OPEC agreed to maintain -- a "rollover" in OPEC jargon -- its ceiling of 30 million barrels per day, at least 1 million above its own estimate of demand for its oil in the first half of next year.
... "Shale oil is a disaster as a method of production, the fracking. But also it is too expensive. And there we are going to see what will happen with production," he (Venezuelan Foreign Minister Rafael Ramirez) said. READ MORE and MORE (Platts) and MORE (USA Today) and MORE (CNBC includes VIDEO) and MORE (Bloomberg) and MORE (The Washington Post)

Excerpt from Platts: Morgan Stanley warned of “unintended consequences.” The bank said the supply/demand balance suggested that an output cut was not needed before March but that the risk of prices moving lower into next year was now significantly elevated.
“Lower prices are bad for the entire oil complex, not just E&Ps. 2015 capital budgets are still in the process of formation, and capex is likely to be cut further from both US and global players. High-cost international projects could face more pressure,” it said. “Low prices today also raise the risk of price shocks in the future. The lower and longer prices fall in the interim, the greater the long-run impact. Losing too much investment or stimulating demand could create a price shock in future years as necessary supply growth cannot return quickly once curtailed.” READ MORE

Excerpt from USA Today: ... Much of the recent increase in U.S. oil production, the product of fracking and drilling in North Dakota, Colorado and elsewhere, is funded with borrowed money, said Philip Verleger, an economist and energy industry consultant who forecast an abrupt end to the trend.
"I think the lending to companies that are going to drill that kind of well is going to stop. Right now," Verleger predicted in a Friday phone interview. "There's going to be no more cash into these companies from the outside." READ MORE

Excerpt from The Washington Post: ... In the United States, there are losers, too — mostly in the oil patch. The oil services giant Halliburton has lost 44 percent of its value since July 23. Heavily indebted Continental Resources, a huge shale oil producer in North Dakota’s Bakken region, has lost half its value since Aug. 29. Even BP, a big, integrated firm, has lost a quarter of its value in just the past few months.
“It happened so fast, it’s been a shock to the system,” said Scott D. Sheffield, chief executive of Pioneer Natural Resources. Sheffield said that if oil prices had stayed between $90 and $100 a barrel, Pioneer would have added 10 new rigs to its fleet of 40, nearly all drilling shale oil wells. Now he is going to wait and see before announcing capital spending plans in February.
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The biggest target of this strategy: U.S. shale oil, which has grown from a negligible amount six years ago to 4 million barrels a day, nearly half of U.S. production and more than any OPEC member except Saudi Arabia. Other high-cost oil projects, such as Canada’s oil sands, could also be curtailed or postponed.
But oil prices have historically swung from one extreme to another; it takes years for price signals to change exploration plans and production levels. U.S. exploration firms might be able to withstand lower oil prices than OPEC members that need oil revenue to balance their budgets and keep their citizens content. A Citibank analysis says that current prices will not eliminate growth in U.S. shale oil output, only trim that growth by 30 percent. READ MORE