Crude price war producing victims

February 11, 2015 09:11 AM

Oil producers outside OPEC and U.S. shale fields are getting caught in the confrontation over market supremacy that has brought crude prices to near six-year lows.

High-cost regions from aging North Sea fields to untapped resources in East Siberia and deep-water projects off Latin America will suffer the most from the clash, say Standard Chartered Plc, Citigroup Inc. and BNP Paribas SA.

The Organization of Petroleum Exporting Countries refused to cut output in November to eliminate a surplus caused in large part by U.S. production at a three-decade high, leaving more expensive operators to reduce supply. International oil companies including Royal Dutch Shell Plc and Chevron Corp. have announced more than $40 billion in spending cuts since early November.

“What’s going to tighten the market for next year and the year after will be the longer-lasting damage done to the rest of non-OPEC,” Paul Horsnell, an analyst at Standard Chartered in London, said by phone.

Oil production from non-OPEC nations grew by 2 million barrels a day last year, with about 75% of the new supply coming from the U.S., according to the International Energy Agency, a Paris-based adviser to 29 nations.

Surplus Supply

A supply surplus of about 1.5 million barrels of oil is pumped into the market daily, OPEC Secretary-General Abdalla El- Badri said Jan. 26. Brent crude, the global benchmark, fell for seven straight months, the longest slump on record, to the lowest level since March 2009. Futures for March settlement traded at $55.63 a barrel at 1:49 p.m. local time on Wednesday, down 52% since June, on the London-based ICE Futures Europe exchange.

U.S. shale drillers have been among the first to respond to lower prices. They cut rigs targeting U.S. oil by a record 435 to 1,140 in the nine weeks to Feb. 6, according to Baker Hughes Inc. That’s the lowest total since December 2011 as explorers slow efforts in the Permian Basin in Texas and North Dakota’s Bakken formation.

Yet the U.S. will still contribute the most of any country to the expansion of global oil supplies this decade, with the current slowdown marking a pause, not an end to the boom, the IEA said in a report Tuesday. Drilling from hard-to-penetrate rock formations including shale will still add about 1.6 million barrels a day to global markets by 2020, it said.

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