Saudi Arabia’s oil supply strategy could turn ugly for all producers – by Eric Reguly (Globe and Mail – February 14, 2016)

Who is the Saudi Arabian oil industry’s worst enemy? If you guessed it is the burgeoning U.S. shale oil industry, you would be half right. The enemy is also OPEC itself, and the Saudis may be set to destroy their own creation.

Fifteen months ago, the Organization of Petroleum Exporting Countries, led by the Saudis, abandoned its price-fixing strategy, allowing the market to set the price. The strategic about-face meant that individual OPEC countries could, in effect, ignore production caps and produce and export as much as they wanted.

The Saudis’ goal was to claw back market share lost to more expensive production from the U.S. shale industry, the Canadian oil sands and offshore wells.

The strategy has either been an abject failure or a resounding success, depending on where you are standing on the global oil map.

From the American point of view, the Saudi-engineered price collapse – oil has gone from about $110 (U.S.) a barrel in mid-2014 to about $30 – has worked cruelly well. American oil producers put up a good fight but are now showing signs of capitulation. Production of both the shale and conventional variety is down about 500,000 barrels a day since last spring and the plunging drilling-rig count suggests the downturn could soon turn into a rout.

Earlier this month, the oil-field services group Baker Hughes reported that the number of oil rigs working in the United States had dropped 71 per cent from its peak in the fall of 2014 to 467 rigs.

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