Who Is Winning The Oil War ?

Oil markets seem to be stabilizing as prices begin to rise, or is this speculators driving up prices to dump their holdings. Crude oil climbed to trade at 52.80 on Monday but gave back 69 cents in the Asian session as traders booked profits. Brent oil followed suit this morning decline 48 cents to trade at 58.60. The dip in the US dollar should have made the commodity a bit more attractive but the reverse seems to be occurring.

Saudi Arabia continues to maintain their global position by controlling the oil markets while pumping record high levels of the black gold. “The end of OPEC” might be closer to reality now, according to Edward Morse, global head of commodities research at Citigroup. The shale revolution “has created a sort of existential threat to Saudi Arabia and OPEC,” he wrote in a report on Monday.

Founded in 1960, OPEC is led by some of the most influential oil-producing nations in the world, like Saudi Arabia, Qatar, Iran and UAE.

The Saudi’s plan is to pushes prices as low as possible to drive US oil companies out of the business or to reduce projects. The plan seems to be working in the near term.  BP, Shell, Chevron, ConocoPhillips — to E&P — Marathon Oil, Apache, Laredo Petroleum, Concho Resources, Carrizo Oil & Gas, Abraxas — to completion and services companies — Schlumberger, Halliburton, Baker Hughes. The majors are cutting capital expenditure and services companies are announcing job layoffs left and right.

The United States is the largest producer of oil in the world and Canada has been ramping up output as well. That means not only has OPEC lost its biggest customer – America, but it no longer has the ability to manipulate prices to its own advantage.

The U.S. shale revolution has truly changed the game. That much was clear in late November when OPEC changed strategies and decided not to put a floor beneath tumbling oil prices by cutting production. OPEC decided it would rather maintain market share than keep prices high. That was code for squeezing high-cost producers like shale producers in the U.S. and the oil sands in Canada.

However, innovations have lowered the price that North American producers need to turn a profit. While the low oil prices resulting from the OPEC move is hurting shale and will lower U.S. output, domestic production is still expected to grow this year — just at a slower pace.

U.S. shale producers are also able to quickly react to price changes, revving up or slowing down production faster than traditional oil players. Citi noted how conventional oil in OPEC and Russia is up only 5% since the start of the decade, compared with 40% in Canada and a whopping 75% in the U.S.

In the US gasoline prices are slowly edging up as Brent oil rallies, but still remains well below its average price in 2014 as US consumers benefit. The offset on the hardship to producers is a benefit for consumers. The months of dropping gas prices are coming to an end. Last week, the national average rose by 12 cents to $2.175. The state average increased by 13 cents, averaging $2.202 per gallon.

But even though the price of oil rose by $3.45 over the last week, it is still 52 percent cheaper than the highest price in 2014.