U.S. oil companies could do best after Saudi Arabia’s astonishing move

Last week’s OPEC + meeting was quite exciting, with the world’s oil powers gathering again to negotiate the next few months’s production. Officially, the parties finally agreed to increase their production by 75,000 barrels per day in February and another 120,000 in March. This in itself was not such bad news, as previously there was even an increase in production of 500,000 a day.

The real big bang, however, was when Saudi Arabia announced after the meeting that it would voluntarily cut its product by an additional 1 million barrels a day in February and March.

According to Saudi Energy Minister Prince Abdulaziz bin Salman:

We are the guardians of this industry.

He added that Crown Prince Mohammad bin Salman was behind the decision.

And oil prices have rallied sharply since the announcement, with both Brent and WTI up nearly 7 percent in a week, the former at $ 55.1 and the latter at $ 51.6 a barrel.

And the biggest winner of all this could be American shale oil producers, who have suffered severely from lower oil prices in recent months. In some oil fields they can already operate at a profit of $ 30-40 per barrel according to Rystad Energy.

At current prices, that is, at a WTI rate above $ 50 per barrel, operating cash flow (CFO) from shale oil could increase 32 percent in 2021 compared to last year.

This can also be seen in the graph below, which shows how much cash can flow into shale oil producers at different oil prices.

Source: Rystad Energy

It can also help shale oil growers to follow these dire times prices for oil services have fallen sharply, that is, it is cheaper to get equipment and advice.

For the time being, however, higher oil prices are only expected to contribute to higher profits, but not to the expansion of shale oil production. The economic outlook remains uncertain,

IHS Markit estimates that an oil price of $ 60-65 would be needed to increase U.S. oil production by 1 million barrels a day.


Cover image: George Rose / Getty Images

Source: Portfolio.hu – Üzlet by www.portfolio.hu.

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