Talk from inside OPEC meeting room was about squeezing US shale

2015 will the year of the oil price war, it appears.

On one side you have traditional producers, including OPEC. On the other you have the booming US shale industry.

Gulf producers are more concerned about market share than profitability, leaks from inside Thursday’s OPEC meeting reveal.

“[Saudi Arabian oil minister Ali al-Naimi] spoke about market share rivalry with the United States. And those who wanted a cut understood that there was no option to achieve it because the Saudis want a market share battle,” said a source who was briefed by a non-Gulf OPEC minister after Thursday’s meeting.

A price war is a game of chicken.

On one side you have a series of ramshackle governments who need high prices to sustain budgets and remain in power. On the other, you have a US shale industry that’s awash in debt in an expensive-to-produce type of oil where wells dry up after 6 months.

The question is: at what price level will US shale shut down? Or at what level will traditional producers shut down?

Talk is that shale is profitable anywhere from $42 to $80/barrel. There’s no consensus or clarity but I believe that in six months we’ll have a much better idea.