After 3 years of reducing production, OPEC+ increased the oil pump again, partly to regain the lost market share to American shale oil companies.
On 3/5, the Organization of Petroleum and Allied countries (OPEC+) agreed to accelerate the plan to increase production in June, with 411,000 barrels a day. Thus, in a total of the second quarter, OPEC+ will pump 960,000 barrels a day to the market.
The move to increase production this time was initiated by Saudi Arabia. Analysts stated that this is not only to punish countries in OPEC+ benefits from high prices but violations of production quota. Their second goal is to put pressure on the US shale oil industry to regain market share.
Having accounted for more than half of the global oil production, OPEC’s market share has decreased from 40% 10 years ago to less than 25% this year, according to the data of this organization itself. In contrast, the US market share increased from 14% to 20%. Calculating allies, OPEC+ groups currently provide about 48% of world oil production.
10 years ago, OPEC’s oil battle against the US shale oil industry failed. New drilling technologies and techniques help American businesses reduce costs and competition at lower prices, thereby expanding market share.
However, the US shale oil industry is now more vulnerable to a new battle. Over the past 3 years, the production costs of these companies have increased. Profits also decreased due to oil prices going down, partly due to economic impact from President Donald Trump’s import tax policy.
Reuters Extracting sources in the industry indicates that the goal of regaining market share is one of the reasons for OPEC+decision on May 3 of OPEC+. However, no source confirmed this was a price battle. Source of Reuters It is said that to cause damage to US shale oil companies, OPEC+ need to push the price down to 55-60 USD per barrel, instead of 65 USD currently.
OPEC+ said they made a decision based on “the basic factors of the market stable, expressed through low inventory”. This organization has been produced since the end of 2022, in order to prevent the supply in the market, causing the price to decrease, causing damage to member countries that depend on oil exports. However, this plan does not promote much effect. Until early this year, this group cut 5.86 million barrels a day, equivalent to 5.7% of global demand. Since April, the production of OPEC+ has gradually increased.
However, the increase of OPEC+ output also takes place in the context of the highest quality shale oil exploitation areas in Permian – the largest oil field in the US – is gradually exhausted. When businesses have to switch to other areas, production costs have increased. Inflation is also putting pressure on this activity.
According to the first quarter of the US Federal Reserve (Fed) Dallas Branch with more than 100 oil and gas companies in Texas, New Mexico and Louisiana, shale oil manufacturers currently need an average price of 65 US a new box. Meanwhile, Saudi Arabia’s oil production cost is only about 3-5 USD per barrel. And Russia is about 10-20 USD, according to analysts estimates.
“It is time to regain lost market share,” an OPEC+ source said above Reuters. Saudi Arabia often confirms that low production costs will help the country to last the last in any competition.
The sources of Reuters said Russia also gradually agreed with the strategy of Saudi Arabia. It is to increase the output to punish OPEC+ members over the quota, and put pressure on rivals, including shale oil companies.
“The main cause of the imbalance of the oil market is the increase in the US shale oil production,” a high -level Russian source revealed. The source also said that bringing oil prices below 60 USD per barrel is suitable for the interests of Moscow, which can facilitate the export of oil of this country. Currently, G7 prohibits enterprises from providing services for Russian oil if the export price exceeds 60 USD per barrel.
After trading in a narrow margin of 70-80 USD in most last year, Brent crude oil price last month had a low time to 4 years, with 58 USD per barrel. The reason is that OPEC+ begins to increase production and investors are concerned about global economic prospects.
Linhua Guan – CEO Surge Energy America said that this time was very unfavorable for American oil companies. Surge Energy America is one of the largest private oil companies in the country, operating in the Permian basin.
Guan said the US oil production this year may have been reduced, because high -quality mines have been exhausted. In addition, the import tax policy of the US and the volatile market has also pushed many businesses to the verge of bankruptcy.
“OPEC+ increasing output is causing the market share of American shale oil companies,” he said.
Earlier this month, the number of rigs in the US to the lowest level since January, according to the data of Baker Hughes Petroleum Service Company. Diamondback Energy Shades recently lowered the 2025 output forecast, on the grounds of global economic instability and supply from OPEC+. Conocophillips, a warning of 50 USD per barrel can cause many companies, including large corporations, have to narrow their operations.
However, the price battle will cause all the damage. Low oil prices forced businesses to reduce investment, personnel and dividends. This also puts great fiscal pressure on countries depending on oil revenue. The International Monetary Fund (IMF) estimates that Russia needs oil prices over 77 USD to balance the budget. For Saudi Arabia, this figure is over 90 USD.