The Saudis probably aren't trying to hurt the American oil market. They tried that several years ago and it didn't work. Why didn't it work?
Well pedes, most of America's oil wells are now shale oil wells. This has advantages and disadvantages. The biggest disadvantag is that it requires a fairly high price of oil for the wells to be profitable. As the OP states, around $30/bbl is the break even point. Anything lower and the wells have to be turned off. This brings us to the advantageous part of shale oil. Shale oil wells can be turned off and on like your water faucet in the kitchen. This is not normal. Most traditional oil wells cannot be turned off without losing the entire well in the process. That means a new well would have to be drilled in order to access that oil after the previous well had been capped.
The Saudis and the rest of OPEC learned this the hard way back in late 2015. They tried to drive the American shale oil companies out of business by dropping prices really low. Sure, some underfunded and high leveraged companies did go out of business, but their wells remained ready to use and were sold to other companies. The US oil industry just waited the Saudis and OPEC out. They knew that eventually prices would have to go back up, and they did. When that happened, the wells were turned back on.
America's oil industry is now very large and virtually indestructible.OPEC has a small fraction of the power it once had and with more shale oil wells being opened up in this country and around the world, OPEC's influence continues to wane.
They're trying to hurt Russia for not agreeing to production cuts, we're just collateral damage. Trump mentioned that they were aware of the situation and working on a remedy for the shale oil producers.
Yeah, they can hurt Russia a lot because Russia's oil wells are traditional and they are in the far north of Siberia which makes the overhead on those wells quite high. Capping those wells is not an option for Russia as drilling new ones will be very expensive and in the mean time, Russia wont be producing anything. Russia will have to eat the loss for as long as they can and it's going to be a big financial strain on their oil industry, and by extension, their economy.
Cutting prices will certainly be a big threat to Russia, but not so much to America.
...or, Russia can just give in to the Saudi's demands.
The Saudis probably aren't trying to hurt the American oil market. They tried that several years ago and it didn't work. Why didn't it work?
Well pedes, most of America's oil wells are now shale oil wells. This has advantages and disadvantages. The biggest disadvantag is that it requires a fairly high price of oil for the wells to be profitable. As the OP states, around $30/bbl is the break even point. Anything lower and the wells have to be turned off. This brings us to the advantageous part of shale oil. Shale oil wells can be turned off and on like your water faucet in the kitchen. This is not normal. Most traditional oil wells cannot be turned off without losing the entire well in the process. That means a new well would have to be drilled in order to access that oil after the previous well had been capped.
The Saudis and the rest of OPEC learned this the hard way back in late 2015. They tried to drive the American shale oil companies out of business by dropping prices really low. Sure, some underfunded and high leveraged companies did go out of business, but their wells remained ready to use and were sold to other companies. The US oil industry just waited the Saudis and OPEC out. They knew that eventually prices would have to go back up, and they did. When that happened, the wells were turned back on.
America's oil industry is now very large and virtually indestructible.OPEC has a small fraction of the power it once had and with more shale oil wells being opened up in this country and around the world, OPEC's influence continues to wane.
They're trying to hurt Russia for not agreeing to production cuts, we're just collateral damage. Trump mentioned that they were aware of the situation and working on a remedy for the shale oil producers.
Yeah, they can hurt Russia a lot because Russia's oil wells are traditional and they are in the far north of Siberia which makes the overhead on those wells quite high. Capping those wells is not an option for Russia as drilling new ones will be very expensive and in the mean time, Russia wont be producing anything. Russia will have to eat the loss for as long as they can and it's going to be a big financial strain on their oil industry, and by extension, their economy.
Cutting prices will certainly be a big threat to Russia, but not so much to America.
...or, Russia can just give in to the Saudi's demands.