Despite Saudi Arabia’s attempts to drive the price of oil into the ground as it tries to bankrupt U.S. shale oil producers, many investors with deep pockets are gearing up to intervene. There is already an estimated war chest of around $60 billion to buy out troubled companies and keep U.S. shale oil production in business once the price of oil rebounds
Hedge funds and private equity groups have been watching the situation in the U.S. carefully and are already planning to scoop up the oil production infrastructure when the time is right led, in part, by Blackstone and Carlyle. The goal is to take over some of the distressed companies when the assets are cheap enough and revive the industry once the global glut of oil dissipates, most likely later this year.
Despite Saudi Arabia’s best efforts however, the U.S. shale oil industry has shown itself to be more resilient than even the most optimistic analysts had predicted, but for many of the companies, the situation is becoming untenable. At present there are around 45 listed shale companies that are either insolvent or negotiating with their creditors to try and buy more time.
Rocky Road Ahead
The situation is likely to worsen before it gets better, as Iran will add even more production with 300,000 barrels of oil per day expected to hit the market by the spring. Despite the financial woes however, many financial backers are reluctant still to pull the plug on the industry, fearing another financial collapse. Saudi Arabia in the meantime is playing a very risky game of chicken as U.S. shale oil is significantly cheaper to produce, a fact that has helped U.S. oil companies weather the rock bottom price of oil despite their financial constraints.
Whatever the outcome, the current over production is unsustainable and will result in one of sides folding, but with so many investors waiting in the wings, it is not certain that it will be the U.S.