[ABOUT TIME] OPEC says Saudi cheap oil strategy not working

OPEC has finally come to terms with the fact that its Saudi led strategy to squeeze North American Shale producers isn’t quite working.

OPEC on Tuesday raised its forecast of oil supplies from non-member countries in 2015, a sign that crude’s price collapse is taking longer than expected to hit U.S. shale drillers and other competing sources.

Oil is trading below $50 a barrel, close to its 2015 low after an 18 percent drop in July.

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But OPEC has refused to cut output, seeking to recover market share by slowing higher-cost production in the United States and elsewhere that had been encouraged by OPEC’s prior policy of keeping prices near $100.

U.S. energy companies have been adding drilling rigs in recent weeks despite the price drop, and OPEC in the report raised its forecast of U.S. output in 2015 by 20,000 bpd. In March, OPEC was expecting a fall in production possibly by late 2015 as drilling subsided.

“OPEC is starting to recognise the resilience of U.S. shale,” said Jamie Webster, analyst at IHS in Washington and an OPEC expert.

Oil prices fell after the report was released, extending an earlier drop. Brent crude was down $1.34 at $49.07 by 1434 GMT.

Lower costs

A reduction in the cost of oil projects since the price crash is helping non-OPEC supply to compete in the market.

“The OPEC secretariat is indeed re-evaluating non-OPEC supply’s ability to withstand prices,” said Samuel Ciszuk, senior adviser on security of supply to the Swedish Energy Agency.

“Project costs have come down a lot and are continuing to fall, according to recent data. This is particularly so with regards to the U.S. light, tight oil – which has provided most of non-OPEC output growth, or in OPEC’s view the oversupply.”