Relief for US shale producers

IT WAS A moment US shale oil producers have been waiting on for more than two years: Opec nations finally agreed to cut production on Wednesday in a move that lifted low prices ravaging their budgets.

The agreement effectively establishes a floor on prices near $50 (R677) a barrel – around where many US shale oil companies can make money and drill new wells. The floor is twice as high as where oil languished in the depths of the downturn.

“This gives US producers more confidence,” said James West, a partner at the investment firm Evercore in New York. “They may become a touch more aggressive than they had planned to be.”

US benchmark crude rose more than 5 percent to $47 a barrel on the news, pending final details about the cut, which would not be known until after another Opec meeting in November.

One US shale oil industry veteran likened the results of the price war to a bruising 12-round boxing match that ended in a technical draw. After Opec in mid-2014 let oil prices fall as it sought to regain market share, dozens of small and high-cost US producers fell into bankruptcy.

Budgets of Opec members from Venezuela to Angola shrank on a 60 percent slide in crude prices. And two days before the deal was announced, Saudi Arabia cut ministers’ salaries by 20 percent and scaled back financial perks for public sector employees.

But in the US the big shale firms – the ones responsible for the bulk of all new onshore domestic crude output – survived. They confounded Opec by cutting costs and finding new ways to squeeze more oil from rock.

The likes of Anadarko Petroleum, EOG Resources, Apache and more than 25 other companies showed they can weather oil at $40 a barrel and profitably drill new wells as oil ticks toward $60 a barrel.