OPEC+ leaders, especially Saudi Arabia and Russia, are pursuing a dual goal. Alongside plans to boost oil production and penalize allies who overproduce, they want to challenge U.S. shale producers and reclaim market share lost to the United States.
Lessons from the Last Price War
A decade ago, OPEC’s attempt to cut into U.S. shale production failed. Advances in technology and drilling helped U.S. shale companies reduce costs and compete at lower prices. This allowed the U.S. to gain market share from OPEC’s 12 members over the following years.
Current Vulnerability of U.S. Shale Production
Today, U.S. shale producers face tougher conditions. Their costs have increased over the past three years. At the same time, their revenues have dropped due to lower global oil prices. Part of this drop stems from the economic effects of President Donald Trump’s tariff policies.
Inside OPEC+ Production Strategy
Reuters interviewed 10 OPEC+ delegates and industry sources who were briefed by Saudi Arabia or Russia on production plans. Four of these sources said regaining market share influenced the May 3 decision to speed up production increases. However, none described this as a price war.
To pressure shale producers, OPEC+ would need to push oil prices below $55 to $60 per barrel, down from around $65 now, the sources said. All requested anonymity due to the sensitivity of the topic.
Creating Uncertainty Below $60 a Barrel
“One Saudi goal is to create uncertainty about other countries’ plans when prices are below $60 a barrel,” said an industry insider familiar with Saudi thinking.
Requests for comment from Saudi Arabia, Russia’s Deputy Prime Minister Alexander Novak, and OPEC went unanswered.
Market Fundamentals and Rising Costs
OPEC+ includes members of OPEC and allies like Russia and Kazakhstan. They cited “healthy market fundamentals” and low oil inventories as reasons to cut production.
However, their output increase comes as the highest-quality shale resources in the U.S. Permian Basin—the country’s largest oil field—are running low. Producers face rising costs as they shift to less productive areas. Inflation adds further pressure.
Profitability Challenges for Shale Producers
A Dallas Federal Reserve Bank survey in the first quarter found that shale producers in Texas, New Mexico, and Louisiana need oil prices averaging $65 per barrel to make a profit.
By comparison, Saudi Arabia’s production costs are estimated at $3 to $5 per barrel, and Russia’s at $10 to $20 per barrel.
Declining OPEC Market Share
At its peak, OPEC supplied more than half of the world’s oil. Over the past decade, its market share has fallen from 40% to under 25%. Meanwhile, the U.S. share has grown from 14% to 20%.
Together, OPEC+ and its non-OPEC allies produce about 48% of global oil.
Production Cuts and Increases
Over five years, OPEC+ cut output by 5.85 million barrels per day—about 5% of global demand—to balance markets while U.S. shale production expanded. Now, OPEC+ is raising output.
“It’s time to regain lost market share,” an OPEC+ source told Reuters.
Saudi Arabia insists its low production costs will let it outlast competitors.
Moscow’s View on Saudi Strategy
Sources say Russia has gradually accepted Saudi Arabia’s plan to raise output. This move aims to punish OPEC+ members like Iraq and Kazakhstan for overproducing, while pressuring shale producers.
“A key imbalance in the oil market is caused by U.S. shale growth,” a senior Russian source said.
The Russian source added that oil prices below $60 a barrel—capped by the Group of Seven for Russian oil due to the Ukraine war—could actually benefit Moscow’s exports.
Impact on Oil Prices and U.S. Producers
Brent crude, the global benchmark, traded between $70 and $80 for most of last year. But it dropped to nearly $58 in April amid OPEC+ production rises and global economic worries.
Guan Linhua, CEO of Surge Energy America, a major U.S. crude producer in the Permian Basin, said the timing is tough for U.S. producers.
He noted that high-quality shale reserves have been depleted this year. Tariff policies and market turmoil have hit the industry hard, with bankruptcies expected.
“OPEC+ increased production is taking market share from U.S. shale,” Guan said.
Declining Rig Count and Production Forecasts
Baker Hughes reported U.S. oil and gas rig numbers fell to their lowest since January.
Diamondback Energy recently cut its 2025 production forecast, citing global economic uncertainty and rising OPEC+ supply.
ConocoPhillips warned that oil prices near $50 a barrel could force widespread production cuts, even among major companies.
A Price War that Hurts All
Lower oil prices strain companies and countries alike. Oil firms face pressure to reduce spending, cut jobs, and limit dividends. Countries dependent on oil revenues face budget stress.
The IMF estimates Russia needs prices above $77 a barrel to balance its budget. Saudi Arabia requires over $90.
While OPEC+ does not have a formal price target, members regularly discuss price levels and their economic impact.
Saudi officials have told allies they can tolerate $60 a barrel prices, even if it means borrowing more to balance their budget. This suggests the kingdom is willing to endure some financial pain to regain market position.
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