Note on US Oil Market and Saudi’s Decision not to Cut Production

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Note on US Oil Market and Saudi’s Decision not to Cut Production

  • The US still imports over 7 million b/d of crude, mainly from Canada and Saudi Arabia, but exports 2.36 million b/d of oil products
  • US crude production at 8.86 million b/d in September 2014 with total oil at 14 million b/d, including 3 million b/d of NGL, 1 million b/d renewables and 1.1 million b/d from refining gains (NGL mainly used as industrial feedstock)
  • High oil prices have encouraged a LTO boom, but current low prices are likely to damage domestic US production
  • LTO operators are highly indebted, quantitative easing and low interest rates have helped feed the boom. As the end of these conditions looms, OPEC’s decision not to cut production potentially threatens the boom further
  • Average break-even price for Bakken producers is $63/bbl (WTI), 185 wells/month needed to maintain Bakken output growth
  • OPEC’s decision is likely aimed primarily at damaging LTO production and recovering market share
  • As a by-product, it also harms Iran and Russia, traditional antagonists of the Kingdom

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