Dubai: Shale oil production in the United States could survive another onslaught of diving global prices due to break even costs being lower than what many initially expected.

Brent crude, a global market indicator for oil prices, has lost nearly a fifth of its value since June when it hit this year’s peak of above $115 (Dh422) a barrel. Prices have fallen amid a global glut and weaker demand out of growth markets including in China and Europe.

Bob McNally, a former White House official and now head of Rapidan Group, said by phone most people think around $70 to $75 a barrel (US crude) is when there will be a decline in US shale drilling.

By late afternoon Dubai time on Monday, Brent touched $85.95 a barrel, down 0.24 per cent, while US crude hit $82.99 a barrel, up 0.29 per cent.

“A lot of these [shale] companies have hedged. Those equity investors are going to say to those US companies, ‘Don’t you dare stop drilling.’” McNally said.

Michael Moran, Managing Director, Global Risk Analysis at political risk analysts Control Risks, said by phone looking at estimates from the US Energy Information Administration (EIA) shale margins become questionable around $75 a barrel. “The margins are expected in an industry that depends on investment rather than state cash … [but] we’ve got another way to go before we’re worried about $75 a barrel,” he said.

US shale production has cut the country’s reliance on oil imports — including from Saudi Arabia — as Washington moves forward with its policy of energy independence.

McNally believes falling prices could spur US policy makers to lift a current ban on US oil exports, which currently favour its allies in the Arabian Gulf.

He said the pain felt in the shale sector due to weak prices could reverberate with US policy makers.

While larger producers may be able to wind down production in light of weakening prices, the smaller, highly leveraged producers who borrowed money from the banks rather than hedging could feel the sting.

“The banks collateral has gone down — these are the types of folks that are going to be the most vulnerable,” McNally said.

Shwan Zulal, an associate fellow at King’s College and the director of London-based Carduchi Consulting, disagrees that lower prices will lead to a policy shift.

“There is a move in the US, they want to [lift the export ban] but if they do that now prices will go down even further and in some ways it doesn’t suit the tight [shale] oil people,” he said by phone.

Adding, “It’s not a good idea to [lift the export ban] until prices stabilise.”

Moran believes lower prices will mean the US maintains its monopoly over shale technology because production would be unfeasible for other countries at current pricing.

“The US is a pioneer in this … the US has a very well earned reputation for cost control,” he said.

Many had thought that Saudi Arabia would cut production to keep prices at $100 a barrel — a price the country’s oil minister has previously said is “fair.”

“Saudi Arabia can sweat out lower oil prices much easier than other Opec producer such as Iran and Iraq,” McNally said.

Saudi Arabia, and many other economies including Iran, Russia and Venezuela, relies heavily on oil revenues.

The International Monetary Fund (IMF) estimates Saudi Arabia’s break even oil production price for Brent is $87 a barrel.

McNally points out that Saudi Arabia has an estimated foreign currency reserve of $750 billion. He said if prices were to touch $80 a barrel then Saudi Arabia would forgo $15 billion in revenue — 2 per cent of their estimates war chest — at current production levels.

“They [Saudi Arabia] know their rivals would hurt a lot more than they would,” McNally said.