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Oil well pump jacks located in Almond Orchard located over the Monterey Shale in San Joaquin Valley.
Yet Butterfill emphasized his skepticism over the commodity’s ability to maintain such a high level even in spite of the positive developments out of OPEC over the weekend.
“Every time Saudi Arabia or OPEC try to manipulate oil prices they’re being undermined by the United States,” he said, referring to the quick ability of shale producers to up output as soon as the economics made sense once again.
Given current dynamics, this looks to be unlikely a game which Saudi Arabia or other higher cost producers are positioned to win in the short-term, given that the marginal cost of certain fracking basins – such as the Permian basin – has dropped to as low as $36 per barrel.
This compares to a total fiscal cost – including state obligations such as social welfare – of around $70 or $65 in Saudi Arabia and Iran, respectively, according to Butterfill.
The Saudi Arabians’ enthusiasm to extend the agreement must also be viewed in the context of upcoming capital market events.
“It’s also worth noting that the Saudi Arabians are in the process of listing Aramco [Saudi Arabia’s national oil and gas company], and therefore will require a stable oil price to support their $2 trillion valuation of the company,” Sam Wahab, director of oil and gas at Cantor Fitzgerald Europe, told CNBC via email on Monda.
Returning to the theme of the threat from U.S. shale, Wahab agreed that the key downside risk continues to stem from growing U.S. production.
“A further nine U.S. oil rigs were added last week, bringing the total count up to 712 – the most since April 2015. It is very likely this trend will continue at current oil prices,” Wahab contended.