The Biggest Victim of the Saudi-Russia Oil Price War is the US

Oil Prices Fall to Lowest Level in 18 Years
US Shale Companies Face Crisis Unable to Withstand Oil Price War... Push for Production Cuts
US Likely to Relinquish Status as World's Largest Oil Producer

[Asia Economy Reporter Naju-seok] As oil prices have fallen to their lowest level in 18 years, the United States is at risk of losing its status as the world's largest crude oil producer. Due to low oil prices making profitability difficult, shale companies have requested production cuts, leading the state of Texas, a major oil-producing region, to consider production cuts for the first time in 40 years. The forecast that "the biggest victim of the unprecedented low oil price trend will be the United States" is becoming a reality.

According to the Wall Street Journal (WSJ) on the 30th (local time), leading U.S. shale companies Pioneer Natural Resources and Parsley Energy have requested the Texas state government to hold a Railroad Commission public hearing to discuss crude oil production cuts. Texas is also reportedly sympathetic to the need for production cuts. This public hearing has never been held since the 1970s. The fact that these companies requested it indicates how serious the situation is. Matt Gallagher, CEO of Parsley Energy, expressed concern, saying, "If additional measures are not taken, many producers will have to halt production."

U.S. shale companies have moved toward production cuts because oil prices have been falling daily, causing severe management difficulties. West Texas Intermediate (WTI) crude briefly fell below $20 per barrel during the day before slightly rising to close at $20.09, the lowest level in 18 years. Brent crude also showed weakness, trading as low as $22.94 per barrel during the day. Considering that shale oil production is profitable at around $50 per barrel, these prices are unreasonably low.

The international crude oil market is plummeting due to decreased demand caused by the COVID-19 pandemic and the oil price war between Saudi Arabia and Russia. Experts believe that Saudi Arabia initially pushed for large-scale production cuts, but when Russia did not agree, the oil price war broke out. The competition between Saudi Arabia and Russia is impacting U.S. crude oil production.

Experts predict that as a result of this oil price war, the United States may lose its position as the world's largest crude oil producer. Daniel Yergin, Vice Chairman of market research firm IHS Markit, forecasted, "If low oil prices persist, U.S. crude oil production will significantly decrease, and the U.S. will lose its status as the world's largest crude oil producer." The U.S. became the world's largest crude oil producer in 2018, surpassing Saudi Arabia and Russia, thanks to shale production.

The market situation is worsening. Despite concerns about oversupply next month, Saudi Arabia has announced plans to increase production to an all-time high. Meanwhile, crude oil demand is sharply declining. Yergin pointed out, "(Due to the impact of COVID-19) global crude oil demand will decrease by 20 million barrels per day next month," adding, "This is six times the demand reduction seen during the financial crisis."

Although U.S. shale companies face an existential crisis due to the oil price war between Saudi Arabia and Russia, there are criticisms that the U.S. government has limited options. On the same day, U.S. President Donald Trump held a phone call with Russian President Vladimir Putin, agreeing to have officials discuss the oil price issue. Yergin commented, "The U.S. government has no tools other than diplomatic power."

If U.S. crude oil production decreases, changes in diplomatic and security strategies will be inevitable. The U.S. had become a net crude oil exporter and could reduce reliance on Middle Eastern oil, but if production declines, its strategic position could weaken.

Saudi Arabia, which triggered the oil price war, has reaffirmed its stance not to retreat from its existing position on increasing production, directly or indirectly. According to Bloomberg News, Saudi state-owned oil company Aramco is reportedly pursuing the sale of shares in its pipeline subsidiary. This is interpreted as an attempt to offset revenue losses caused by low oil prices through the sale of subsidiary shares.