The day after Thanksgiving, the oil and gas industry was dealt a crushing blow. Already facing a downward market, it was then met with news that members of the Organization of the Petroleum Exporting Countries had collectively made the decision to not cut production, with Saudi Arabia leading the agenda.
The remainder of last year was throttled by plummeting share prices from the publicly traded exploration and production (E&P) companies and the continuation of price slides on the oil indexes, both West Texas Intermediate (WTI) and Brent. Through December and into the new year, companies were faced with an unfortunate reality, which was to cut capital expenditures in order to weather the storm of uneconomic oil prices, an uncertain rebound forecast, and a correction to profitable levels.
In an opinion piece, “Who Will Rule the Oil Market?,” published in The New York Times on 23 January, renowned analyst Daniel Yergin wrote, “By leaving oil prices to the market, Saudi Arabia and the Emirates also passed the responsibility as de facto swing producer to a country that hardly expected it—the United States. This approach is expected to continue with the accession of the new Saudi king, Salman, following the death on Friday [23 January] of King Abdullah. And it means that changes in American production will now, along with that of Persian Gulf producers, also have a major influence on global oil prices.”
Commenting on it, Reed Rogers, Parkwood International’s executive vice president of downstream refining and chemical manufacturing practices, notes that, “The US does not have a cartel of oil producers who will act in concert, so expecting the US to act as a swing producer who will lower production to increase price is not realistic. What is more likely is that lower oil prices will weed out higher-cost US producers, which will be a random, rather than concerted, event. In either case, higher prices would be the outcome. However, we don’t see many US producers being ‘weeded out’ so far so I agree with Barclay’s latest survey that a USD 50/bbl price will be maintained for much of 2015.”