As OPEC And US Shale Producers Battle US Consumers Are Big Winners

As Saudi Arabia ups the ante in its war against US shale production the price of oil continues to fall. Crude oil is trading at 62.58 down by 47 cents while Brent oil touched 65.78 off by 36 cents. Both contracts settled at more-than-five-year lows. The US energy industry is battling OPEC with a ferocity not seen since the 1980s. So far, it’s not backing down. The oil cartel’s decision last week not scale back on production was widely seen as an attempt to choke off the U.S. shale boom. OPEC figures that by driving down oil prices, North American producers will collapse. Both sides are feeling the heat as oil prices stay below $70. Oil rich nations are losing out on much-needed revenue to bankroll their budgets, and many domestic energy players are feeling the pressure as well.

The dollar index, which measures the greenback against a basket of currencies, rose to a multi-year high after monthly US employment data released Friday showed better-than-expected job growth.

Oil is traded in US dollars, so a stronger dollar makes oil more expensive for buyers using foreign currencies.  Oil prices have plunged for months as global supply growth has outpaced expectations while demand has been tepid. The Organization of the Petroleum Exporting Countries opted to maintain its production quota in November, disappointing some investors who had hoped the cartel would lower production to tighten global supplies.

China’s crude oil imports rose 5.5 per cent in November from October and were up 7.9 per cent year-on-year, according to Wall Street Journal calculations based on preliminary data released from the General Administration of Customs on Monday.

With oil prices tumbling to record lows, the fear is that hunting for new shale in the U.S. may just not be that profitable. Oil prices have dropped 40% since June. And OPEC’s bombshell decision in November not to scale back on production has sent prices even lower. It was also widely seen as an attempt by the oil cartel to choke off the U.S. shale boom.

ConocoPhillips has announced a sharp cutback in spending on exploration and spending as global oil prices continued to push downward. The US oil company set capital spending in 2015 at $US13.5 billion ($14.6bn), about 20 per cent below 2014. Development drilling spending will fall 23 per cent, to $US5bn.

The company said the reduction reflects lower spending on major projects that are near completion and also the deferral of spending on “unconventional plays” in North America, generally shale deposits that entail more expensive production and are potentially unprofitable with the low oil prices.

ConocoPhillips said that despite the cutback in exploration and production spending, the company will be able to increase production next year by about three percent, thanks to new fields just coming on line.

Gasoline prices fell below $2 a gallon at a station in San Antonio on Friday, making Texas the second U.S. state where prices have dipped that low this week. The significant drop in oil prices is leading to a boom for US consumers just at the right second, as Christmas shopping ramps up retailers should be seeing huge gains and should be thanking OPEC for the holiday gift.