Two years ago, when Saudi Arabia launched on an unprecedented campaign to crush high-cost oil producers, in the process effectively putting an end to the OPEC cartel (at least until last year’s attempt to cut production), it made a bold bet that US shale producers would be swept under when the price of oil tumbled, leading to a tsunami of bankruptcies, as well as investment and production halts. To an extent it succeeded, but where it may have made a glaring error is the core assumption about shale breakeven costs, which as we reported throughout 2016, were substantially lower than consensus estimated.
In his latest note, BofA’s Francisco Blanch explains not only why a drop in shale breakevens costs is what is currently the biggest wildcard in the global race to reach production “equilibrium”, but also why US shale oil production could surge in the coming years, prompting OPEC to boost production in hopes of recapturing market share. Specifically, Blanch predicts that US shale oil production could grow by a whopping 3.5 million barrels per day over the next five years.
This post was published at Zero Hedge on Feb 20, 2017.