OPEC+ Reloads for Another Showdown With U.S. Shale

Irina Slav, a writer at Oilprice.com with extensive experience in the oil and gas industry, reported that OPEC+ is contemplating increasing production in July to exert pressure on U.S. shale producers and recapture market share, mirroring tactics used during the 2014 oil price war. Despite advancements in efficiency, U.S. shale remains vulnerable due to high drilling costs, wastewater disposal challenges, and evolving market conditions. While engaging in a price war would negatively impact all producers, including OPEC member states reliant on budget revenues, the group may opt for a more nuanced approach to uphold its influence.

Recent media reports suggest that OPEC+ could announce a larger-than-planned production increase at its upcoming meeting, partly to ensure compliance from Iraq and Kazakhstan. Another objective, according to a new Reuters report, is to challenge U.S. shale once again. A decade ago, OPEC flooded the market with oil, causing prices to plummet and some shale drillers to go out of business. However, surviving companies improved efficiency and cost control, gaining market share from OPEC. While U.S. shale production still carries higher costs compared to conventional wells in Saudi Arabia, the industry has significantly progressed since 2014.

Despite the progress made by U.S. shale companies, a potential price war sought by OPEC and OPEC+ could pose challenges. The groups aim to regain lost market share from U.S. shale producers by discussing a significant production increase for July. This strategy intends to create uncertainty by keeping prices below $60 per barrel. The U.S. shale industry faces uncertainties from various factors, including President Trump’s tariff policies and evolving oil demand projections. While U.S. shale competes with OPEC+ primarily in Europe, efforts to reduce oil demand in the region may impact market outlooks.

In conclusion, OPEC+ may allow U.S. shale drillers to struggle with higher costs without risking additional revenue. The reported desire to flood the market with inexpensive oil to harm U.S. shale reflects OPEC’s declining share of global oil supply over the years. While OPEC+ may not be as unified in strategy as OPEC alone, its collective output remains significant in the global oil market. Challenges faced by U.S. shale, such as wastewater reservoir issues, may alter supply growth forecasts, impacting the market dynamics. Considering the risks and potential repercussions of a price war, OPEC+ may opt for a more nuanced approach to address the U.S. shale challenge.