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This week, media reports said OPEC+ could announce yet another bigger than initially planned production hike at its next meeting. On the face of it, the goal is getting quota laggards Iraq and Kazakhstan in line. The other goal, according to a new Reuters report, is to try and kill U.S. shale, again.

The oil-producing club took U.S. shale on about a decade ago, turning the taps all the way and flooding the market with oil. Prices crashed. So did a lot of shale drillers at the time. Yet the ones that survived got better at getting the oil out of the shale formation cheaper—and they started taking market share from OPEC. Ten years on, U.S. shale production still features higher costs than conventional wells in Saudi Arabia overall, but the industry has come a long way since 2014 and has made significant gains in cost control and efficiency.

Unfortunately, that won’t save drillers from trouble if a price war is really what OPEC—and its partners in OPEC+—is after. According to almost a dozen sources from OPEC itself and the energy industry that Reuters interviewed, OPEC is indeed after a price war. The group, these sources said, wanted to retake some market share lost to U.S. shale producers, hence the third 411,000-bpd addition to production being discussed for July.

“The idea is to put a lot of uncertainty into plans by others with prices at below $60 per barrel,” said one of the Reuters sources, which the publication described as being “briefed on Saudi Arabia's thinking. In fact, there is already plenty of uncertainty for U.S. shale oil producers amid President Trump’s tariff push and the dominant outlook for oil demand in general. What’s more, the U.S. is only an actual competitor to OPEC+ in Europe, and that’s where the political leadership is putting a lot of effort into killing oil demand, so the outlook for that particular market is not among the most optimistic long-term.

So, essentially, OPEC+ can just sit back and relax while U.S. shale drillers reduce production in the face of higher costs. Per the latest Dallas Fed Energy Survey, U.S. shale drillers need between $26 and $45 per barrel to cover their operating expenses at existing wells across the shale patch. But to drill new wells profitably, they need prices starting at $61 per barrel of West Texas Intermediate and reaching $70 for the Permian Basin, outside the Delaware Basin part of it.

In other words, shale drilling is already expensive due to things like material inflation and natural depletion, so OPEC+ does not really need to risk its own revenues additionally just to kill the few remaining smaller independents in the patch—because Big Oil is not going to die. It’s only going to get bigger.

The Reuters report suggesting OPEC+ wants to flood the market with cheap oil to hurt U.S. shale notes that OPEC’s share of global oil supply had fallen over the last couple of decades from over 50% before the shale revolution to 40% a decade ago and “just” 25% this year. The U.S. share, meanwhile, has risen from 14% to 20%.

However, 25% is still a solid percentage of global supply, and with OPEC+, this share rises to a rather respectable 48%, which is pretty close to half the world’s supply. Indeed, OPEC+ is not as united in its strategy as OPEC was on its own, as evidenced by Kazakhstan’s production behavior, yet the group remains a potentially formidable force for the oil market by virtue of its collective output.

U.S. drillers, meanwhile, are facing additional trouble from wastewater reservoirs, Bloomberg reported just this week. Due to the accumulation of wastewater underground, the risk of leaks has increased, and the Railroad Commission of Texas is taking steps in the form of drilling restrictions until such time as underground disposal reservoir pressure falls.

This, by the way, means that all those forecasts pointing to non-OPEC supply growth outpacing OPEC supply growth are no longer worth the devices they were written on. Even the International Energy Agency has changed its tune on non-OPEC supply growth, recognizing U.S. shale’s challenges that have affected production plans. It still expects non-OPEC to add more supply than OPEC for some reason, but not all of it from the U.S.

In addition to not really needing to do anything to make U.S. shale suffer, there is also another important consideration for OPEC+ before it goes into price war mode. There are no real winners in price wars. Everyone gets hurt in it, as Reuters points out in its report. And while Middle Eastern producers boast low production costs for their conventional wells, they need high prices for their oil because it represents a significant portion of their budget revenues. So if a price war is indeed what OPEC+ wants to do with U.S. shale, it will probably be a more subtle price war than the one from 2014.

By Irina Slav for Oilprice.com