[Salon] Oil: Reason And Rhyme - ArabDigest.org Guest Post

Oil: Reason And Rhyme Summary: as US oil output hits a record high and the shale sector prepares to ride out lower prices still, Riyadh faces the very real prospect of history repeating itself. We thank our regular contributor Alastair Newton for today’s newsletter. Alastair worked as a professional political analyst in the City of London from 2005 to 2015. Before that he spent 20 years as a career diplomat with the British Diplomatic Service. In 2015 he co-founded and is a director of Alavan Business Advisory Ltd. You can find Alastair’s latest AD podcast, Saudi Arabia and an uncertain oil market here. “Never underestimate the American engineer.” Kaes van’t Hof, CEO Diamondback, 3 November 2025 It is now almost nine months since the ‘Opec+ eight’ started to unwind their voluntary cuts in oil output after Saudi Arabia had strong-armed them into an unexpected u-turn. When the decision was announced on 3 March Brent crude stood at US$71.62 per barrel (pb). Today, it is hovering around US$62pb, a couple of bucks of which can be attributed to the US’s actions against the regime in Caracas (which some believe to be driven primarily by a desire to seize control of Venezuela’s heavy crude reserves to fuel US refineries) and Ukraine’s escalating strikes on Russia’s oil infrastructure and shadow fleet. The public justification for a change of policy, which has resulted in a shortfall of roughly US$30pb relative to the Kingdom’s balanced budget price, has never been convincing, i.e. maintaining price stability in the face of the Opec secretariat’s bullish forecasts for growth in demand. And there may not have been a single real reason for it. However, despite the failure of similar efforts in 2014-16, a second attempt to squeeze US shale production and claw back market share lost in recent years is now widely seen as a (if not the) major driver. With a three month time-out now called on further unwinding of the voluntary cuts, it is therefore a good moment to take stock of how things stand today in the US shale sector and its prospects into next year. Overall, two related — in this particular context — quotes widely attributed to Mark Twain spring to mind. First, ‘reports of my death are greatly exaggerated’. Second, and alluded to in the headline to this Newsletter, ‘history rhymes’. For it increasingly appears that many among the commentariat — and, presumably and for the second time, the Saudis — may have underestimated the resilience of US shale. Looking first at where things stand today, it is certainly the case that, as this 13 December article in OilPrice.com asserts: “The US shale exploration and production (E&P) and Lower 48 midstream sectors experienced a volatile and challenging 2025, likely a far cry from what operators envisioned this time last year as the second Trump administration’s ‘energy dominance’ agenda was taking shape”. As I argued in the 9 November Newsletter, the unwinding of the voluntary cuts was far from the only reason for this…and possibly not even the most important as is at least implied by the tirade of criticism of the Trump Administration revealed in successive Dallas Federal Reserve sector surveys including the most recent which was published last week. However, despite these various challenges, on 9 December the authoritative Energy Information Administration (EIA) raised its forecast for average US 2025 oil production by 20,000 barrels per day (bpd) to 13.61mbpd, the highest on record. This is not to say that “grumpiness” among oil executives is entirely unjustified; after all, as a result of these challenges the oil-oriented rig count fell from 415 at the start of the year to 386 at the end of last month. Nevertheless, in its 3 December Energy Newsletter (behind a paywall) Bloomberg too elected to reference Mark Twain by describing it as “greatly exaggerated”. Despite Saudi Arabia’s efforts to squeeze US shale production by increasing Opec+ output, US oil production reached a record 13.61 million barrels per day in 2025 as drillers remained resilient in the face of falling prices [photo credit: Sinopec Saudi Arabia] Sticking with Bloomberg as we turn to 2026, its commodities opinion columnist Javier Blas, in an op-ed published in late November, pinpointed why doom and gloom over US shale prospects going forward is likely to prove equally misplaced as follows: “Call it shale 4.0 — an arms race to squeeze more oil from existing wells. Today, American drillers recover, at best, 10-15% of the shale oil in place. That could soon change. Increasing the ratio even by a single percentage point is a prize worth billions of dollars over the lifetime of thousands of wells in Texas, New Mexico, North Dakota and Colorado. ‘The best place to find oil is where you already know you've got oil,’ Chevron CEO Mike Wirth tells me in an interview in New York. ‘We know where the oil is. If we left 90% of the oil behind, it would be the first time in history that we didn't figure out how to do it.’ The industry will need sweat, imagination, time — and dollars — to deliver that prize. But I wouldn’t bet against success.” This is entirely consistent with forecasts published earlier in November by several shale producers to the effect that they expect to increase output in 2026 as they adjust to an average price per barrel for US benchmark West Texas Intermediate (WTI — currently at US$57.50pb) of US$60 or below. (According to the EIA, the average for 2025 was just over US$65pb.) Furthermore, the impact of the lower oil price is being cushioned to an extent by the boom in demand for LNG being driven by the urgent need for more power for AI-related data centres. In consequence, as David Wethe and Kevin Crowley wrote, also for Bloomberg, on 6 November, quoting sector experts at Macquarie Group: “…prices will have to fall into the low $50-a-barrel range before the industry pulls back”. This has not prevented the EIA from forecasting a drop in US average oil output in 2026 of 50,000bpd. But relative to this year’s record high and the International Energy Agency’s latest forecast of a global output surplus next year of close to four million barrels per day this is no more a rounding error. Putting all this together, the question which Riyadh has to answer between now and the end of March is whether it is prepared to boost output still further and suffer the fiscal consequences of US$55pb Brent crude (at which point WTI would likely be hovering just above US$50) despite there being no guarantee that even this would achieve its objective. Having come this far, and especially after its failure to rein in shale a decade ago, this will not be an easy decision.