Amidst OPEC+’s decision to increase oil output and punish overproducing allies, Saudi Arabia and Russia, the alliance’s key leaders, are also planning to challenge U.S. shale production to regain market dominance.
A decade ago, OPEC’s price war against American producers faltered as technological advancements enabled U.S. shale companies to slash expenses, compete at reduced prices, and progressively capture market share from the OPEC+ group. Though U.S. shale producers have faced escalating costs over the past few years and dwindling revenues due to the slump in global oil prices influenced by President Trump’s trade policies, making them more susceptible to a price war.
In an effort to regain lost market share, OPEC+ decided to accelerate its output increase at the meeting on May 3, with sources suggesting a motive to compete with U.S. shale firms.
Reuters cited 10 OPEC+ delegates that hinted at the potential for a price war, none explicitly confirmed it. To weaken shale producers, OPEC+ would need to drive oil prices below the current $65 per barrel to levels ranging from $55 to $60, as per sources familiar with the matter. Saudi Arabia aims to induce uncertainty among competitors by maintaining prices below $60 per barrel, as disclosed by an industry source.
Saudi Arabia asserts its ability to withstand competition due to low production costs, positioning itself favorably in any market rivalry. Analysts estimate Saudi Arabia’s production costs to be between $3 to $5 per barrel, and Russia’s to be in the range of $10 to $20 per barrel.
