Reuters: Saudi Arabia and Russia has taken up US shale production

The decline in oil prices due to the increase in production by OPEC+ countries is aimed not only at punishing allies who violate quotas. Saudi Arabia and Russia wants to oust the United States and regain its share of the world market, writes Reuters.

"The last OPEC price war with American producers 10 years ago ended in failure, as breakthroughs in technology and drilling allowed American shale companies to cut costs, compete at lower prices and in subsequent years take market share from a group of 12 countries," writes Reuters. — However, US production is now more vulnerable to a price war. American shale producers have faced rising costs over the past three years. Their incomes are also falling due to the decline in world oil prices, which is partly due to the economic consequences of President Donald Trump's tariff policy."

Agency sources in OPEC+ and the industry said that the rapid recovery of production, which was approved by OPEC+, is aimed at regaining market share.

In order to damage shale oil producers today, OPEC+ needs to reduce oil prices below their current level of about $65 per barrel to less than $55-$60, the interlocutors added.

"The idea is to introduce more uncertainty into the plans of other miners at a price below $60 per barrel," said an industry source familiar with Saudi Arabia's plans.

Over the past 10 years, the United States has increased oil production by more than 60% to 22.71 million barrels per day in 2024. OPEC production decreased slightly over the same period to 32.39 million barrels per day.

OPEC+ is increasing production at a time when the best shale areas in the largest US oil basin, the Permian, are running out.

"As producers move to secondary sites, the cost of production increases. Inflation has added these costs," Reuters cites a study by the Dallas Federal Reserve, according to which shale oil producers now need an average price of $ 65 per barrel to drill profitably.

At the same time, the cost of production in Saudi Arabia is estimated at $ 3-$ 5 per barrel, and in Russia — $ 10-$20.

In ten years, OPEC's share in the global market has decreased from 40% to 25%, and the US share has grown from 14% to 20%. All participants in the OPEC+ deal produce about 48% of all oil in the world.

"It's time to regain the lost market share," one of the OPEC+ sources told Reuters. The agency also refers to an anonymous high—ranking Russian official who allegedly told the agency that the main source of imbalance in the oil market is the growth of shale oil in the United States. According to him, the price of oil below $ 60 may suit Moscow.

Linhua Guan, CEO of the American mining company Surge Energy America, said that there could not be a worse time for American producers. In his opinion, oil production in the United States is likely to fall this year, as the highest quality reserves have already been depleted. And the tariff policy of the US administration and the unstable market threaten bankruptcies in the industry.

"The increase in OPEC+ production is taking market share away from American shale producers," Linhua Guan said.

The IMF estimated that Russia needs oil at $77 for a balanced budget, and Saudi Arabia needs oil above $90.

"However, the evidence that Saudi Arabia is ready for some difficulties is that the kingdom's officials informed allies and industry experts that they consider the price period at $ 60 tolerable, even if they have to borrow more money to balance the budget," writes Reuters.