You don't need $20 oil to kill shale
There's a narrative emerging around OPEC+ and shale: The mainstream thinking is that Russia and Saudi Arabia want to drive crude prices lower to kill US frackers.
I don't think it's correct, or at least not wholly correct.
The reality is that shale didn't make any money in 2019 at $55 oil. Even at that price, it was on its way to mass insolvencies, albeit at a slower pace. I've been writing about the bust in shale for more than a year.
All this talk that OPEC+ wont' cut without the US is a bluff. Why? Because shale is still going bust at $30-$40 oil.
If OPEC can cut back 10mbpd maybe it gets crude into that range and it will slow storage issues.
Ultimately, the US is going to cut at least 20% of production anyway because shale is mostly a scam.
What Russia and Saudi Arabia are undoubtedly thinking about is the long term. There is no doubt that oil is going much higher in the years ahead. Before this episode there was already mass underinvestment in oil and the drops in capex this year have been staggering.
If you kill shale and send everyone into bankruptcy, then Exxon is there to pick up the pieces at 10-cents on the dollar. Without any debt and an abundance of equipment in a firesale, shale becomes more competitive and you might actually see more US production in 3-5 years. If you can leave dozens of zombie companies that continue to hold untapped acreage, equipment and mountains of debt then you leave the US in a less-competitive position overall.
