OPEC has been on a five year mission to reduce the oil glut sloshed on the global supply by the U.S. Shale production. This mission is finally in reach, Saudi Arabia wants cuts to go further to cause a small supply shortage. The underlying result would be increase oil prices.
Previously content with oil at $60 a barrel, Al-Falih is now seeing $70 as the level where crude prices should trade, according to a person familiar with the matter, who asked not to be identified to Bloomberg because the information was private.
With the cost of social programs and the pending IPO of Saudi Aramco, a higher oil price would be very beneficial. However, if it’s at the cost of additional market share to the U.S. Shale industry, one questions if additional cuts will have the desired results on price.
“If you’re Mohammed Bin Salman, and trying to radically reinvent your country” then “you need a certain price to make it work,” Helima Croft, head of commodity strategy at RBC Capital Markets LLC said to Bloomberg.
With the current recovery, the shale-oil output from the U.S. is surging and on track to surpass both Saudi Arabia and Russia as the world’s largest crude producer this year (according to forecasts from the Department of Energy). With the ability to flood the market with supply, the U.S. Shale industry looks to be the catalyst that will impact price swings, and possible crashes, in the coming years.