When OPEC decided not to cap output in 2014, flooding the market with oil, it was trying to drive higher-cost producers – most notably U.S. shale – out of profitability range. It succeeded in contributing to the oil glut, collapsing the oil prices, and hurting many U.S. shale plays and producers who were waiting for better times before returning to activity. However, this strategy spectacularly backfired on OPEC’s biggest producer and de facto leader Saudi Arabia, which started to book budget deficits amid the low oil prices, with deficit an unthinkable concept five years ago. The recent U-turn in OPEC and Saudi strategy – cutting back output to try to draw down oversupply and prop up oil prices – comes with a caveat: at higher oil prices, higher-cost producers – U.S. shale in particular – have more economic reasons and profit-making motivation to increase drilling and M&A activity. And […]