OPEC+ Going to War with US Shale

OPEC+ is going to war with U.S. shale.

That’s according to Sandhill Strategy co-founder Katie Bays, who expressed the view in a television interview with Bloomberg on Sunday.

The move is something the group has “avoided doing since they cut production in 2016”, Bays outlined in the interview.

Commenting on the path of oil prices, Bays told Bloomberg that the floor is “kind of up for grabs because what the market is trying to figure out now is how low do crude prices have to fall to discourage U.S. producers from pumping more oil”.

“We haven’t found that floor since 2008, so the question will really be ‘is $20 low enough?’ … I’ve seen analyst commentary in the $20-$30 a barrel range. I think that’s a good guess. That’s taking us back to where we were in about the first half of 2016, but again 2016 was a major shock to the market but it didn’t lead the market to durably cut production,” Bays added.

“It’s a dire situation for the market now to try to work its way out of a major oversupply with demand uncertain as well, due to coronavirus,” Bays continued.

OPEC held its 178^th extraordinary meeting last Thursday and ended up proposing a further 1.5 million barrel per day production cut until the end of 2020. The group met with non-OPEC counterparts to try to finalize the deal on Friday, but no agreement was reached.

Prior to the OPEC+ meetings, IHS Markit revealed that it expected world oil demand would decline by the largest volume in history in the first quarter.

The International Energy Agency cut its 2020 base case global oil demand forecast by 1.1 million barrels per day in its latest oil market report released this month. For the first time since 2009, the IEA expects demand to fall year-on-year, by 90,000 barrels per day.

Sandhill Strategy describes itself as an industry-leading research and corporate consulting firm. The company is based in Washington, D.C.

To contact the author, email andreas.exarheas@rigzone.com