Marginal producers of oil?
Yves Smith adds her thoughts on possibilities of the market price decline for oil:
When the Saudis announced their intention not to support oil prices when they were sliding towards $90 and plunged quickly through that level, we deemed the move to be a masterstroke. It served to damage both economic and political enemies. On the economic front, the casualties would include renewables, Canadian tar sands, and the US shale gas industry. On the geopolitical front, the casualties would include Iran, Syria, Russia…. and the US.
The Saudi “pump, baby, pump” strategy is tantamount to OPEC abandoning its cartel role. From Anatole Kaletsky in Reuters:
The U.S. shale revolution is perhaps the strongest argument for a return to competitive pricing instead of the OPEC-dominated monopoly regimes of 1974-85 and 2005-14. Although shale oil is relatively costly, production can be turned on and off much more easily – and cheaply – than from conventional oilfields. This means that shale prospectors should now be the “swing producers” in global oil markets instead of the Saudis. In a truly competitive market, the Saudis and other low-cost producers would always be pumping at maximum output, while shale shuts off when demand is weak and ramps up when demand is strong. This competitive logic suggests that marginal costs of U.S. shale oil, generally estimated at $40 to $50, should in the future be a ceiling for global oil prices, not a floor.
The Saudi determination to hold its position and force adjustment onto higher-cost producers makes this Kaletsky scenario seem more likely than it did when he wrote it.
If you are counting on Shale, $55 or so would be a floor. Not a ceiling. Who is going to borrow millions of dollars at junk bond rates simply to break even? Since the wells deplete at amazingly fast rates, around 6%/month you have to keep drilling to keep production level. You have to borrow the money to drill, and at less than $55 you lose money on every barrel produced.