"Drill, baby, drill is gone forever," according to Saudi Prince Abdulaziz following the OPEC meeting.
Rabat – Saudi Arabia is cautious yet confident as the Organization of the Petroleum Exporting Countries (OPEC) announced it will extend production cuts. The move demonstrates Saudi Arabia’s apparent confidence that it has come out on top after a tumultuous year.
At the start of the COVID-19 pandemic US shale gas was still booming as debt-saddled shale gas companies continued to extract the high-cost hydrocarbon. One year on, Saudi Arabia has the largest projected market share it has enjoyed since the 1980s, and the shale gas industry in the US is on its knees after a disastrous year.
“Drill, baby, drill is gone forever,” Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman stated confidently following the virtual OPEC meeting on Thursday, 4 March.
Where last year traditional crude producers such as Saudi Arabia and Russia were seeing their market share shrink, a difficult year seems to have produced a possible long-term advantage.
Low-cost crude production in the Middle East and Russia is profitable at low oil prices while shale gas companies buckled under the weight of their debt as the COVID-19 crisis forced them to sell their product at a loss.
One year since the start of the pandemic, the global hydrocarbon market has changed radically. Traders are cheering when prices climb above $60, shale has lost its sheen, while OPEC continues to cut production in order to help oil prices recover.
That is a risky bet, as rising oil prices could once again increase margins and renew interest in high-cost extraction such as shale gas.
The fact that Saudi Arabia appears to prioritize global oil prices at the possible expense of its own market share is likely a sign of confidence. That confidence appears to be both in Saudi domestic production as well as in the fragility of the US shale gas industry.
Many journalists have spent pages writing about “oil price wars” in 2020. While much of the coverage focused on competition between Russia and Saudi Arabia, in the end it seems that, as the dust settles, the US has been the main casualty.