{"id":5528,"title":"Who Won The 2016 Oil War?","publisher":"Share Talk","author":"sharetalk","published":"2016-12-30T16:42:08+00:00","modified":"2017-11-05T09:26:12+00:00","canonical_url":"https://www.share-talk.com/who-won-the-2016-oil-war/","markdown_url":"https://www.share-talk.com/who-won-the-2016-oil-war.md","json_url":"https://www.share-talk.com/who-won-the-2016-oil-war.json","category":"Learning and Investing","categories":["Learning and Investing"],"featured_image":"https://i0.wp.com/www.share-talk.com/wp-content/uploads/2022/03/st-holder.jpg?fit=1536%2C1024&quality=89&ssl=1","format":"news","language":"en-GB","content":"Heading into the New Year with oil prices above US$50, both OPEC and the U.S. shale industry are claiming victory in the latest oil war battle—and both expect to benefit from higher prices, but there can really only be one winner here.\n\nThe oil price crash of 2014 has left OPEC scrambling to offset declining revenues while trying to maintain their much-coveted market share. The price bust – the consequence of a shale boom and the pump-at-will policy of that very same OPEC despite the global oil glut – has sent the U.S. shale patch trying to adapt to lower crude prices by slashing investments and costs and scaling back production.\n\nAfter the failed Doha attempt in April at reaching an agreement, OPEC managed last month to reach a deal on cutting collective output to [32.5 million bpd](http://oilprice.com/Energy/Energy-General/The-OPEC-Deal-Here-Are-The-Details.html) as of January. It even managed to convince 11 non-OPEC producers – including Russia – to join the global supply reduction with another [558,000 bpd](http://oilprice.com/Energy/Oil-Prices/The-Bulls-Are-Back-Oil-Spikes-As-Non-OPEC-Pledges-558000-Bpd-Cut.html) in an attempt to prop up crude oil prices.\n\nSaudi Arabia – OPEC’s largest single producer and de facto leader – saw its oil revenues shrink in the past two years to the point of leading to fiscal deficits, a concept unthinkable three years ago. Having recorded fiscal surpluses of 11.2 percent, 12 percent, and 5.8 percent, respectively in 2011, 2012, and 2013, Saudi Arabia has now been running fiscal deficits, which stood at 3.4 percent in 2014 and a massive 15.9 percent last year, [figures](https://www.imf.org/en/News/Articles/2016/07/28/15/54/PR16368-Saudi-Arabia-IMF-Executive-Board-Concludes-2016-Article-IV-Consultation) by the International Monetary Fund (IMF) show. This year’s deficit is expected at 13 percent. The Saudis are [canceling projects](http://oilprice.com/Latest-Energy-News/World-News/Feeling-The-Oil-Crunch-Saudi-Arabia-Cancels-266-Billion-In-Projects.html) worth billions of dollars, cutting perks for civil servants, and raising fuel prices.\n\nNow the OPEC/NON-OPEC deal to cut global supply – if producers stick to promised cuts – would give the Saudis some respite for their heavily-oil-dependent economy.**[Related: Rosneft To Ramp Up Global Expansion Under Trump](http://oilprice.com/Energy/Crude-Oil/Rosneft-To-Ramp-Up-Global-Expansion-Under-Trump.html)**\n\nStill, they believe they won the 2014-2016 oil war with U.S. shale. According to Saudi officials quoted by [The Wall Street Journal](http://www.wsj.com/articles/in-oil-face-off-saudis-shale-both-claim-victory-1481803202), the sting to U.S. shale output was worth Saudi Arabia’s and OPEC’s tactics to pump as much as they saw fit.\n\nU.S. shale, on the other hand, had to go through a rough patch of [lay-offs](http://oilprice.com/Energy/Energy-General/Did-Big-Oil-Layoff-Too-Many-Workers-Too-Quickly.html), investment cuts, and production declines in the past year and a half.\n\nAccording to Haynes and Boone’s [Oil Patch Bankruptcy Monitor](http://www.haynesboone.com/~/media/files/attorney%20publications/2016/energy_bankruptcy_monitor/oil_patch_bankruptcy_20160106.ashx), as many as 105 North American oil and gas producers have filed for bankruptcy since the beginning of 2015. U.S. field production of crude oil was 9.627 million bpd in April 2015, and has dropped to 8.58 million bpd in September of this year, [data](https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=m) from the U.S. Energy Information Administration (EIA) shows.\n\nHowever, in its latest Short-Term Energy Outlook, the EIA [said](http://www.eia.gov/outlooks/steo/marketreview/crude.cfm) that “oil production, particularly in the United States, has been more resilient in the current oil price environment than had been expected, as reflected in improving financial conditions at oil companies”.\n\nU.S. producers have been adapting to the low prices and are now ‘meaner and leaner’ and carefully picking investment targets. And the shale patch is also getting ready to take advantage of the higher oil prices that OPEC’s deal is expected to bring about.\n\nAccording to Scott Sheffield, CEO at Pioneer Natural Resources Co, as quoted by the WSJ:\n\n*“Definitely, the U.S. is going to win the next two years because OPEC is cutting and U.S. shale is taking off.”***[Related: Expert Commentary: The Weak Spots In The Oil Price Rally](http://oilprice.com/Energy/Energy-General/Expert-Commentary-The-Weak-Spots-In-The-Oil-Price-Rally.html)**\n\nThe U.S. rig count has been [steadily rising](http://oilprice.com/Energy/Energy-General/The-US-Oil-Rig-Count-Continues-Its-Rapid-Climb.html) since the OPEC deal was announced on November 30, signaling that more producers are returning to work.\n\nThen it’s the Cushing, Oklahoma, factor that is further complicating OPEC’s efforts to win the oil war. For the week to December 2, strategic stockpiles in Cushing saw their [biggest weekly build](http://oilprice.com/Energy/Energy-General/EIA-Reports-Crude-Inventory-Draw-Amid-Rising-Doubts-On-OPEC-Deal.html) since 2008, by 4.01 million barrels.\n\nThe rising stockpiles at the biggest storage hub in the U.S. are partially the result of seasonal factors such as refiners storing crude at the end of the year to lower tax bills. But the full Cushing tanks are also the result of traders and refiners storing oil as OPEC’s promised cuts are pushing forward prices up.\n\nOPEC, and especially Saudi Arabia, want to reduce deliveries to the U.S., and this will be felt at some point at Cushing, *“but not in a long time,”* John Kilduff, a partner at New York-based Again Capital LLC energy-focused hedge fund, told [Bloomberg](https://www.bloomberg.com/news/articles/2016-12-15/opec-threatened-by-tiny-oklahoma-town-with-soaring-stockpiles) last week.\n\nWith January 1 – the day on which OPEC is expected to start cutting supply – just around the corner, the oil war is heading to a new battlefield. In around six months’ time, a it will be clearer who is winning this next round, but for now, it looks like the U.S. shale patch.\n\nBy [Tsvetana Paraskova](http://oilprice.com/contributors/Tsvetana-Paraskova) for Oilprice.com\n\n![Linking Shareholders and Executives :Share Talk](https://www.share-talk.com/img/logo.jpg)"}