OPEC leader Saudi Arabia, not the United States and its shale fields, is the world's true swing oil producer, able to start or stop production quickly in response to demand, the chief executive of Hess Corp said on Tuesday.
The frank admission from the head of one of America's largest oil producers comes as the industry grapples with crude at decade-low prices, which many blame on the Organization of the Petroleum Exporting Countries' decision in late 2014 to hold production steady.
A 70-percent slump in prices has eroded industry margins and forced a dramatic prioritization of capital, with budgets slashed and thousands laid off.
"A swing producer means that virtually at the flip of a switch, you can go up several hundred thousand barrels per day or down several hundred thousand barrels per day," John Hess said in an interview on the sidelines of IHS CERAWeek, the world's largest annual gathering of oil executives.
"Shale can't do that. Saudi Arabia can."
A swing producer has outsized control over oil prices by being able to depress prices with oversupply or boost prices with production cuts.
By describing Saudi Arabia's role as the globe's swing producer, Hess is effectively acknowledging that the country and OPEC's influence on oil prices is far more important than many American executives had hoped or realized as the shale industry has matured since 2009.
Harold Hamm, chief executive of Hess rival Continental Resources Inc,
famously called Saudi Arabia the "toothless tiger" in 2014, saying the country's influence on global markets was diminishing, a statement that now seems misguided.
Ali Al-Naimi, Saudi Arabia's oil minister, went so far as to point that out in a speech to the CERAWeek conference on Tuesday.
"We remain committed to supplying a large portion of the world's energy demands," Naimi said, noting that the kingdom covered global supply needs after Hurricane Katrina shut down part of the U.S. Gulf of Mexico's oil production in 2005.
Hess described American production
as "short-cycle," not able to start or stop immediately, but rather over a longer period of roughly a year.
Shale producers take between six and 12 months to ramp down production, a process that involves idling rigs and work crews. Ramping up production typically takes a similar timeline.
"We're as strong as we thought we were, but there were people who didn't understand shale's behavior versus a swing producer's behavior," Hess said.
Reporting by Ernest Scheyder