The low oil market is hurting everyone, but some much more than others.
Take, for instance, Saudi Arabia, the OPEC cartel leader and oil market kingpin. The country sparked the downward spiral in oil prices last year by keeping up production and glutting the market.
This has backfired on the country tremendously. Earlier this month, Saudi Arabia had to issue $5.3 billion in government bonds to raise money lost on oil exports, the main support for the country’s economy.
$60 billion in foreign assets also had to be liquidated to make up for lost profits. Add that to the fact that the country’s high production still can barely keep up with domestic consumption and you’ve got a clear picture of Saudi Arabia’s losing streak on the oil markets.
Now, I’m sure you’ve heard that OPEC’s aim in lowering oil prices was to squeeze out smaller U.S. shale drillers who were growing rapidly at the time.
And for a time, it worked.
Smaller companies and large company projects fell to the wayside, and drills were shut down across the country.
However, something else happened while oil prices declined — the cost of production also dropped.
In fact, companies are not only cutting costs, but also reducing the time it takes to drill. In 2014, a well could take up to a month to drill.
Today, it can be done in half that time.
Now, the reason why improving drilling efficiency is so crucial is because many companies can keep their wells economical during this period of low commodity prices.
That’s not to mention the fact that companies will boost drilling activity when oil prices rise above $50 per barrel again, since many of those U.S. rigs were simply shut down and not dismantled.
And the final nail in OPEC’s coffin is the recent allowance of U.S. oil trades with Mexico; it’s not a full lift of the oil export ban that’s restricted U.S. crude sales for decades, but it’s a step in that direction.
Of course, the potential of U.S. producers putting their supply on the global market will be devastating to Saudi Arabia, a country that panics over losing its market share.
As it turns out, tech-savvy and cost-efficient U.S. drillers are prepared for a low oil market; OPEC and others can’t quite say the same.
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