WTI Vs. OPEC – The War Of Attrition Is Coming To A Head

The global oil supply finds itself at a precarious predicament at this point in time. We have OPEC and non-OPEC countries competing with one another for market share at the expense of profitability and demand/supply equilibrium. What was once an industry characterised by $115 per barrel of crude oil is now an industry where $30 per barrel or less for crude oil is a reality. This has far reaching ramifications for major oil producers across the world.

As can be seen from the above chart, onshore Middle East producers are in the best possible position to supply crude oil at current prices. But more importantly, countries in the Middle East which form the cartel known as OPEC are best poised to withstand the price pressures being placed on the industry. Onshore Middle East oil clearly has the advantage and countries like Saudi Arabia, Kuwait, Iraq and Iran have massive stockpiles of resources to sustain the short to medium term damage of low prices. This is not quite the case with other countries which produce crude oil such as Shale oil, Arctic oil producers and oil-sands producers.

Defying Logic: Non-OPEC producers hold the line

But somehow, production is being maintained on both ends of the spectrum, as none of the producers is willing to yield to the other side unless absolutely necessary. Make no mistake about it, we have seen an increasing number of Shale oil producers shuttering as costs spiral out of hand. OPEC countries including Venezuela and Nigeria are also feeling the heat, and they would like to see prices rise as much as anyone. But of course the game is rigged. Saudi Arabia is leading the way and it is determined to engage in a medium-term war of attrition against US Shale oil producers at any cost. Saudi Arabia and other OPEC countries have long held the trump card in terms of manipulating oil markets to their own advantage. Now that Shale oil producers are a viable alternative to Saudi Arabian oil, they have resorted to desperate measures. And these desperate measures are evident in every way.