Leonid Fedun, vice president and board member at OAO Lukoil, compared the U.S. shale revolution to the ‘dot-com boom’, predicting in an interview in London that The Organization of Petroleum Exporting Countries’ (OPEC) decision to leave its production ceiling alone will cause the U.S. shale gas industry to crash.
“In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” said Leonid Fedun.
“The shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish,” he added.
Contrary to expectations, OPEC announced yesterday it would keep its limit of 30 million barrels per day despite falling oil prices caused by the oversupply from the North American shale gas boom.
Oil futures in New York plunged as much as 3.8 percent to $70.87 a barrel today, the lowest since August 2010.
According to Mr Fedun, American shale companies are surviving by hedging the oil prices at about $90 a barrel. This, however, is a short-term strategy and when those agreements expire, the situation will become very difficult.
Not everybody agrees with Mr Fedun’s doomsaying, though. A recent IHS report says that about 80 per cent of potential gross US tight-oil capacity additions in 2015 have a break-even price ranging $50-69/bbl and therefore would remain resilient if West Texas Intermediate prices dropped to $70/bbl.
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