US shale wells cost less to operate than wells in Saudi Arabia

Chriss Street:

The U.S. oil boom at a $50 a barrel price continues to profitably accelerate, while Saudi Arabia oil production with an $80-85 a barrel break-even cost continues to shrivel.

Reuters reported a 2018 average wellhead break-even price of $40.95 for America's five top shale oil production regions of Eagle Ford, Bakken, Permian Midland, Permian Delaware, and Niobara.  Even adding a 10 percent corporate overhead cost, the break-even price of about $45 a barrel is still profitable on $50-a-barrel oil.

With the price of West Texas Intermediate averaging $64.90 per barrel in 2018 and $56.07 currently, the U.S. Energy Information Agency reported that American production hit an all-time high of 12.1 million barrels per day (b/d) last week.  EIA forecasts that the U.S. production average will grow to 12.4 million b/d in 2019 and 13.2 million b/d in 2020.

But according to the International Monetary Fund director of the Middle East and Central Asia department, Jihad Azour, that the 2019 per barrel break-even price Saudi Arabia needs to balance its budget is "around $80–$85."  Azour forecasts that with Riyadh planning to increase entitlement spending by $20 billion this year, its break-even cost will move higher. 

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The biggest mistake OPEC ever made was to engage in predatory pricing to try to kill the shale wells.  It backfired big time.  The shale developers became more efficient and lower their breakeven cost to below that of most OPEC countries. With an ever-rising US production, OPEC and Russia have had to trim their own production in an attempt to control the price of oil. 

It is why the Saudi Crown Prince was recently in China and was OK with the Chicoms treatment of Muslims in "reeducation" camps.  He is obviously looking for customers to replace US buyers.  The problem for OPEC is that the US is becoming a major exporter and it has a lower cost basis which means it can offer more attractive pricing to the Asian market.