Rising Oil Prices Reignite the OPEC-U.S. Shale Rivalry

By Angelina RascouetAngelina Rascouet and Sam Dodge

When OPEC meets with Russia and other allies in Vienna this week, they won’t be able to declare “Mission Accomplished” in their fight to end the oil glut. Instead, the producers are expected to extend their production cuts to the end of 2018 to counteract the historic surge in U.S. output. In the year since Saudi Arabia abandoned its battle for market share and led an agreement to cut supply instead, international benchmark Brent crude has risen by more than a third. That’s helped cash-strapped petrostates, but also spurred U.S. output to a 35-year high. The tug of war between shale and OPEC that’s dominated the oil market for three years shows no sign of ending.

OPEC & Russia and U.S.

Normalized Production

bbls/day

(Jan. 01, 2014 = 100)

Brent

Oil price

USD per barrel

120

120

118

110

116

100

114

90

112

80

110

70

108

60

106

50

104

40

102

30

100

20

98

10

2014

2015

2016

2017

Brent oil price

June 19, 2014 Brent hits $115.06, highest level for the year before the downturn ensues.

January 20, 2016 Brent crude drops to $27.88, the lowest in more than 12 years.

December 30, 2016 Oil prices trade at $56.82, the highest for the year.

May 4, 2017 Brent slips below $50 as crude stockpiles in the U.S. keep swelling.

June 20, 2017 Crude prices fall into a bear market as traders become more skeptical that OPEC’s cuts will do the job.

November 6, 2017 Brent reaches highest level in more than two years amid geopolitical tensions in the Middle East.

 

OPEC & Russia production

June 11, 2014 At meeting in Vienna, as OPEC leaves its output unchanged, Saudi Arabia’s oil minister Ali Al-Naimi says “we don’t need to worry about anything.”

November 27, 2014 After cooperation talks with Russia fail, Saudi Arabia leads OPEC to chase market share rather than cut production, sending prices into a tailspin.

March 31, 2015 Saudi Arabia raises its crude production above 10m b/d for the first time in decades.

December 4, 2015 OPEC’s unity left in tatters as the group fails to agree to a new production target, prompting prices to fall again.

January 7, 2016 Saudi Arabia announces its intention to hold an IPO for state-run producer Aramco, part of a broader strategy to diversify the Kingdom’s economy.

January 16, 2016 Sanctions related to Iran’s nuclear program end, allowing the OPEC member to increase its crude output over time.

February 16, 2016 Saudi Arabia and Russia surprise the market with a preliminary deal to freeze production at current levels, boosting prices.

April 17, 2016 Talks in Doha to finalize the freeze fail as Saudi Arabia refuses at the last minute to sign up.

May 7, 2016 The Saudis signal a policy shift as Ali Al-Naimi, longtime oil minister, is replaced by former Aramco CEO Khalid Al-Falih.

September 28, 2016 OPEC and Russia meet in Algiers and agree to cut production, although crucial details are unresolved.

October 31, 2016 Russia’s oil production hits 11.2m b/d, the highest level in almost 30 years.

November 30, 2016 OPEC agrees to cut output by 1.2m b/d starting Jan. 1. A few days later, non-OPEC countries, including Russia, pledge to reduce their output by 600,000 b/d.

November 30, 2016 OPEC production reaches all-time high of 34.14m b/d.

January 1, 2017 OPEC and its allies start cutting production for six months.

February 10, 2017 IEA says OPEC made 90% of its pledged cuts, a level never reached in previous agreements.

May 15, 2017 Saudi Arabia and Russia say they favor extending production cuts until the end of 1Q 2018 as it becomes clear six months isn’t enough. This decision is formalized at a meeting in Vienna 10 days later.

 

U.S. production

June 25, 2014 Shale oil producer Pioneer’s market cap hits a record $33.4 billion as U.S. production powers ahead.

October 10, 2014 It’s drill, baby, drill as U.S. oil rig count hits record high of 1,609.

June 5, 2015 U.S. crude output hits 9.61m b/d, a record that will be surpassed in Nov. 2017.

September 16, 2015 Shale bets start to sour as U.S. producer Samson Resources files for bankruptcy with a $4.2 billion debt load.

April 14, 2016 Energy XXI, another U.S. shale producer, files for bankruptcy protection.

May 27, 2016 Low prices drive oil-drilling in the U.S. to the lowest level since October 2009.

July 14, 2017 U.S. crude inventories fall below their year-ago level for the first time since 2014.

Brent

Oil price

USD per barrel

OPEC & Russia and U.S.

Normalized Production bbls/day

(Jan. 01, 2014 = 100)

120

120

118

110

116

100

114

90

112

80

110

70

108

60

106

50

104

40

102

30

100

20

98

10

2014

2015

2016

2017

Brent oil price

June 19, 2014 Brent hits $115.06, highest level for the year before the downturn ensues.

January 20, 2016 Brent crude drops to $27.88, the lowest in more than 12 years.

December 30, 2016 Oil prices trade at $56.82, the highest for the year.

May 4, 2017 Brent slips below $50 as crude stockpiles in the U.S. keep swelling.

June 20, 2017 Crude prices fall into a bear market as traders become more skeptical that OPEC’s cuts will do the job.

November 6, 2017 Brent reaches highest level in more than two years amid geopolitical tensions in the Middle East.

 

OPEC & Russia production

June 11, 2014 At meeting in Vienna, as OPEC leaves its output unchanged, Saudi Arabia’s oil minister Ali Al-Naimi says “we don’t need to worry about anything.”

November 27, 2014 After cooperation talks with Russia fail, Saudi Arabia leads OPEC to chase market share rather than cut production, sending prices into a tailspin.

March 31, 2015 Saudi Arabia raises its crude production above 10m b/d for the first time in decades.

December 4, 2015 OPEC’s unity left in tatters as the group fails to agree to a new production target, prompting prices to fall again.

January 7, 2016 Saudi Arabia announces its intention to hold an IPO for state-run producer Aramco, part of a broader strategy to diversify the Kingdom’s economy.

January 16, 2016 Sanctions related to Iran’s nuclear program end, allowing the OPEC member to increase its crude output over time.

February 16, 2016 Saudi Arabia and Russia surprise the market with a preliminary deal to freeze production at current levels, boosting prices.

April 17, 2016 Talks in Doha to finalize the freeze fail as Saudi Arabia refuses at the last minute to sign up.

May 7, 2016 The Saudis signal a policy shift as Ali Al-Naimi, longtime oil minister, is replaced by former Aramco CEO Khalid Al-Falih.

September 28, 2016 OPEC and Russia meet in Algiers and agree to cut production, although crucial details are unresolved.

October 31, 2016 Russia’s oil production hits 11.2m b/d, the highest level in almost 30 years.

November 30, 2016 OPEC agrees to cut output by 1.2m b/d starting Jan. 1. A few days later, non-OPEC countries, including Russia, pledge to reduce their output by 600,000 b/d.

November 30, 2016 OPEC production reaches all-time high of 34.14m b/d.

January 1, 2017 OPEC and its allies start cutting production for six months.

February 10, 2017 IEA says OPEC made 90% of its pledged cuts, a level never reached in previous agreements.

May 15, 2017 Saudi Arabia and Russia say they favor extending production cuts until the end of 1Q 2018 as it becomes clear six months isn’t enough. This decision is formalized at a meeting in Vienna 10 days later.

 

U.S. production

June 25, 2014 Shale oil producer Pioneer’s market cap hits a record $33.4 billion as U.S. production powers ahead.

October 10, 2014 It’s drill, baby, drill as U.S. oil rig count hits record high of 1,609.

June 5, 2015 U.S. crude output hits 9.61m b/d, a record that will be surpassed in Nov. 2017.

September 16, 2015 Shale bets start to sour as U.S. producer Samson Resources files for bankruptcy with a $4.2 billion debt load.

April 14, 2016 Energy XXI, another U.S. shale producer, files for bankruptcy protection.

May 27, 2016 Low prices drive oil-drilling in the U.S. to the lowest level since October 2009.

July 14, 2017 U.S. crude inventories fall below their year-ago level for the first time since 2014.

OPEC & Russia and U.S.

Normalized Production bbls/day (Jan. 01, 2014 = 100)

98

100

102

104

106

108

110

112

114

116

118

120

2014

2014

U.S.

OPEC & Russia

Brent oil price

June 11: At meeting in Vienna, as OPEC leaves its output unchanged, Saudi Arabia’s oil minister Ali Al-Naimi says “we don’t need to worry about anything.”

June 25: Shale oil producer Pioneer’s market cap hits a record $33.4 billion as U.S. production powers ahead.

June 19: Brent hits $115.06, highest level for the year before the downturn ensues.

Oct. 10: It’s drill, baby, drill as U.S. oil rig count hits record high of 1,609.

Nov. 27: After cooperation talks with Russia fail, Saudi Arabia leads OPEC to chase market share rather than cut production, sending prices into a tailspin.

2015

March 31: Saudi Arabia raises its crude production above 10m b/d for the first time in decades.

June 5: U.S. crude output hits 9.61m b/d, a record that will be surpassed in Nov. 2017.

Sept. 16: Shale bets start to sour as U.S. producer Samson Resources files for bankruptcy with a $4.2 billion debt load.

Dec. 4: OPEC’s unity left in tatters as the group fails to agree to a new production target, prompting prices to fall again.

Jan. 16: Sanctions related to Iran’s nuclear program end, allowing the OPEC member to increase its crude output over time.

2016

Jan. 7: Saudi Arabia announces its intention to hold an IPO for state-run producer Aramco, part of a broader strategy to diversify the Kingdom’s economy.

Jan. 20: Brent crude drops to $27.88, the lowest in more than 12 years.

Feb. 16: Saudi Arabia and Russia surprise the market with a preliminary deal to freeze production at current levels, boosting prices.

April 17: Talks in Doha to finalize the freeze fail as Saudi Arabia refuses at the last minute to sign up.

April 14: Energy XXI, another U.S. shale producer, files for bankruptcy protection.

May 7: The Saudis signal a policy shift as Ali Al-Naimi, longtime oil minister, is replaced by former Aramco CEO Khalid Al-Falih.

May 27: Low prices drive oil-drilling in the U.S. to the lowest level since October 2009.

Sept. 28: OPEC and Russia meet in Algiers and agree to cut production, although crucial details are unresolved.

Oct. 31: Russia’s oil production hits 11.2m b/d, the highest level in almost 30 years.

Nov.30: OPEC production reaches all-time high of 34.14m b/d.

Nov. 30: OPEC agrees to cut output by 1.2m b/d starting Jan. 1. A few days later, non-OPEC countries, including Russia, pledge to reduce their output by 600,000 b/d.

Dec. 30: Oil prices trade at $56.82, the highest for the year.

2017

Jan. 1: OPEC and its allies start cutting production for six months.

Feb. 10: IEA says OPEC made 90% of its pledged cuts, a level never reached in previous agreements.

May 4: Brent slips below $50 as crude stockpiles in the U.S. keep swelling.

May 15: Saudi Arabia and Russia say they favor extending production cuts until the end of 1Q 2018 as it becomes clear six months isn’t enough. This decision is formalized at a meeting in Vienna 10 days later.

June 20: Crude prices fall into a bear market as traders become more skeptical that OPEC’s cuts will do the job.

July 14: U.S. crude inventories fall below their year-ago level for the first time since 2014.

Nov. 6: Brent reaches highest level in more than two years amid geopolitical tensions in the Middle East.

Nov. 30: OPEC and Russia are due to meet again in Vienna, with the focus on another potential extension of the cuts until the end of 2018.

10

20

30

40

50

60

70

80

90

100

110

120

USD per barrel

OPEC & Russia and U.S.

Normalized Production bbls/day (Jan. 01, 2014 = 100)

98

100

102

104

106

108

110

112

114

116

118

120

2014

2014

U.S.

OPEC & Russia

Brent oil price

June 11: At meeting in Vienna, as OPEC leaves its output unchanged, Saudi Arabia’s oil minister Ali Al-Naimi says “we don’t need to worry about anything.”

June 19: Brent hits $115.06, highest level for the year before the downturn ensues.

June 25: Shale oil producer Pioneer’s market cap hits a record $33.4 billion as U.S. production powers ahead.

Oct. 10: It’s drill, baby, drill as U.S. oil rig count hits record high of 1,609.

Nov. 27: After cooperation talks with Russia fail, Saudi Arabia leads OPEC to chase market share rather than cut production, sending prices into a tailspin.

2015

March 31: Saudi Arabia raises its crude production above 10m b/d for the first time in decades.

June 5: U.S. crude output hits 9.61m b/d, a record that will be surpassed in Nov. 2017.

Sept. 16: Shale bets start to sour as U.S. producer Samson Resources files for bankruptcy with a $4.2 billion debt load.

Dec. 4: OPEC’s unity left in tatters as the group fails to agree to a new production target, prompting prices to fall again.

Jan. 20: Brent crude drops to $27.88, the lowest in more than 12 years.

Jan. 16: Sanctions related to Iran’s nuclear program end, allowing the OPEC member to increase its crude output over time.

2016

Jan. 7: Saudi Arabia announces its intention to hold an IPO for state-run producer Aramco, part of a broader strategy to diversify the Kingdom’s economy.

Feb. 16: Saudi Arabia and Russia surprise the market with a preliminary deal to freeze production at current levels, boosting prices.

April 14: Energy XXI, another U.S. shale producer, files for bankruptcy protection.

April 17: Talks in Doha to finalize the freeze fail as Saudi Arabia refuses at the last minute to sign up.

May 7: The Saudis signal a policy shift as Ali Al-Naimi, longtime oil minister, is replaced by former Aramco CEO Khalid Al-Falih.

May 27: Low prices drive oil-drilling in the U.S. to the lowest level since October 2009.

Sept. 28: OPEC and Russia meet in Algiers and agree to cut production, although crucial details are unresolved.

Oct. 31: Russia’s oil production hits 11.2m b/d, the highest level in almost 30 years.

Nov. 30: OPEC agrees to cut output by 1.2m b/d starting Jan. 1. A few days later, non-OPEC countries, including Russia, pledge to reduce their output by 600,000 b/d.

Nov. 30: OPEC production reaches all-time high of 34.14m b/d.

Dec. 30: Oil prices trade at $56.82, the highest for the year.

2017

Jan. 1: OPEC and its allies start cutting production for six months.

Feb. 10: IEA says OPEC made 90% of its pledged cuts, a level never reached in previous agreements.

May 4: Brent slips below $50 as crude stockpiles in the U.S. keep swelling.

May 15: Saudi Arabia and Russia say they favor extending production cuts until the end of 1Q 2018 as it becomes clear six months isn’t enough. This decision is formalized at a meeting in Vienna 10 days later.

June 20: Crude prices fall into a bear market as traders become more skeptical that OPEC’s cuts will do the job.

July 14: U.S. crude inventories fall below their year-ago level for the first time since 2014.

Nov. 6: Brent reaches highest level in more than two years amid geopolitical tensions in the Middle East.

Nov. 30: OPEC and Russia are due to meet again in Vienna, with the focus on another potential extension of the cuts until the end of 2018.

10

20

30

40

50

60

70

80

90

100

110

120

USD per barrel