With Output Hikes, OPEC+ Again Targets US Shale Oil

SEATTLE (Oil Monster): Behind OPEC+'s plan to ramp up oil output and punish over-producing allies, group leaders Saudi Arabia and Russia are pushing a second objective: taking on U.S. shale production to win back market share from the United States.

OPEC's last price war on U.S. producers 10 years ago ended in failure, as breakthroughs in technology and drilling allowed U.S. shale companies to cut costs, compete at lower prices and in the following years take market share from the 12-member group.

U.S. production is, however, more vulnerable now to a price war. U.S. 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+ delegates and industry sources briefed by Saudi Arabia or Russia on their production strategy.

Retaking some market share is one motivation for a May 3 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+ would need to push oil prices lower than their current levels of around $65 per barrel to less than $55-$60, 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 $60 per barrel," said one industry source briefed on Saudi Arabia's thinking.

The Saudi government communications office, the office of Russian Deputy Prime Minister Alexander Novak and OPEC did not respond to requests for comment.

Courtesy: www.reuters.com