OPEC's last price war on US producers 10 years ago ended in
failure, as breakthroughs in technology and drilling allowed US shale companies
to cut costs, compete at lower prices and in the following years take market
share from the 12-member group.
US production is more vulnerable now to a price war. US
shale producers have seen costs rise in the past three years. Their income is
also falling due to declining global oil prices - linked in part due to the
economic fallout from President Donald Trump's tariff policies.
Reuters spoke to 10 OPEC Plus delegates and industry sources
briefed by Saudi Arabia or Russia on their production strategy.
Retaking some market share is one motivation for a May 03
decision to bring back output more rapidly than previously planned, according
to four of the 10 sources, though none said the strategy constituted a price
war yet.
To hurt shale producers today, OPEC Plus would need to push
oil prices lower than their current levels of around US$65 per barrel to around
US$55, said the sources, all of whom declined to be identified due to the
sensitivity of the matter.
"The idea is to put a lot of uncertainty into plans by
others with prices at below US$60 per barrel," said one industry source
briefed on Saudi Arabia's thinking.
OPEC Plus, which includes OPEC members and fellow producers
such as Russia and Kazakhstan, cited "the current healthy market
fundamentals, as reflected in the low oil inventories" as its
reasoning for the production decision.
OPEC Plus output hikes also come as the best quality shale
areas in the biggest US oilfield, the Permian, have been depleted. As
producers move toward secondary areas, production costs are rising. Inflation
has added to those costs.
US oil production was already likely to fall this year, as
top quality inventory has been drilled out, he said. And the US
administration's tariff policies and the resulting volatile market have weighed
heavily with bankruptcies expected across the industry, Guan added.
Earlier this month, the U.S. oil and gas rig count fell to
its lowest since January, according to Baker Hughes.
Shale firm Diamondback Energy (FANG.O),
opens new tab lowered its
output forecast for 2025 earlier this month, saying that global economic
uncertainty and rising OPEC+ supply have brought U.S. oil production to a
tipping point.
