Saudi Arabia has wielded immense power over both the oil producers and consumers based on its proven oil reserves. It not only has the second largest proven oil reserves at 266 billion barrels, its cost of producing a barrel of oil is as low as $8.98 a barrel, according to an article in The Wall Street Journal.
In contrast, in 2014, the cost of producing a barrel of U.S. shale oil ranged anywhere between $50 to $80 a barrel, and the total proven oil reserves at that time stood at 55 billion barrels—relatively small in comparison the reserves on Saudi soil.
Using these strengths, Saudi Arabia embarked on a strategy to scuttle the rapid growth in U.S. shale oil production. Though two years down the line, Saudi Arabia has managed to reduce U.S. production and gain 1 percent of the market share, it has lost considerable market power that it once wielded.
U.S. shale producers cut production costs by half
Saudi competition indeed has forced the U.S. shale oil producers to reduce their cost of production. Some shale producers in the U.S. realized they needed to curb costs in order to survive the low priced oil environment, and so they did just that. Fast forward to 2016, and the cost of producing one barrel of U.S. shale oil is now as low as $23.35 a barrel. The U.S. shale industries resilience—which came ironically at the hands of the Saudi’s—has ensured that it will stay in the competition longer than most expectations.
Rystad Energy surprised everyone with a finding in its July report that showed that the U.S. has more oil reserves than Saudi Arabia. Their study estimates that the U.S. has 264 billion barrels of recoverable oil, though a large part of it remains undiscovered. Comparatively, Russia has 256 billion barrels, and Saudi Arabia 212 billion barrels of recoverable oil.
According to their data, Texas alone held more than 60 billion barrels of oil, more than the existing accepted proven oil reserves in the entire U.S..
“There is little potential for future surprises in many other countries, but in the U.S. there is,”said Per Magnus Nysveen, analyst at Rystad Energy. “Three years ago the U.S. was behind Russia, Canada and Saudi Arabia,” reports CNBC.
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