OPEC has yet to win the fight against shale

Saudi Arabia's oil minister Ali al-Naimi could be forgiven for feeling vindicated as he prepares for the semi-annual meeting of the Organization of Petroleum Exporting Countries (OPEC) on June 5.

Back in November, his government refused to cut the cartel's crude output despite a sharp fall in price. At the time, he declared that low-cost producers like Saudi Arabia would not give up market share to producers of more expensive barrels.

Fast forward half a year, and it looks like al-Naimi has got his wish. The price of Brent has rebounded about 30 percent from a nadir below $50 a barrel in early January. And the main reason has been investor excitement over a sharp decline in drilling activity and tentative signs of stalling output in the United States.

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Fracking: Heading to China now
Bloomberg via Getty Images

But it's too soon for Saudi Arabia to take its victory bow. The decision not to cut – which the cartel looks likely to stick with this month – has still failed to bring frackers to their knees and has been hugely costly to OPEC.

Let's start with the rally. So far crude is climbing higher, but not because OPEC has managed to force outside producers – like the U.S. shale, deepwater or oil sands – to cut production and surrender market share. The glut in global oil supplies that prompted last year's slide remains. At the moment, production continues to outpace consumption by almost 2 million barrels a day, in our view.

Instead, the crude rally has been driven mainly by financial speculation. Managed money doubled their net-long Brent holdings since the start of the year to a near-record 228 million barrels as of May 26, according to ICE Futures Europe.

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However, signs of a slowdown in US production remain relatively tentative. Financial buyers have been convinced by the almost 60 percent decline in the number of active rigs drilling for oil in the U.S. from its peak in October 2014. Still, that slide appears to have reached its bottom, with the latest data showing a slowdown in the decline rate in recent weeks. And in the year to March, US crude output still grew by 1.3 million barrels per day or 15 percent, according to EIA.

What's more, US shale producers are proving more resilient than expected. In Texas' Eagle Ford basin, one of the top shale regions, productivity has increased by close to 50 percent over the past year. Gains have also been over 40 percent in North Dakota's prolific Bakken shale, according to EIA.

Of course, as prices have fallen, drillers have inevitably focused on only the most fecund oil deposits. Even so, the gains also seem to reflect a growing technical savvy along with a fall in the cost of rigs and equipment. As these gains continue, shale producers will be able to drill profitably at ever lower oil prices.

Further, executives at several leading shale producers have indicated in communications with investors that they will bring rigs back into action again if WTI stabilizes around $65 a barrel. That's just striking distance from today's price of around $61 a barrel.

Instead, more of the pain will be felt by even higher-cost projects – notably oil sands and deep water. These will bear the brunt of a 20-25 percent cut in capital spending projects announced by large firms compared to 2014. That should start to slow global supply growth from 2016 onwards, with non-OPEC supply growth slowing sharply. This in turn should help Brent prices continue to recover towards $72 over the coming year.

Read MoreOPEC and oil prices: Sentiment is king

Nevertheless, the Saudi decision to allow market forces play out has been on the gas station forecourts and has delivered an economic boost to large net importers like the U.S., Europe, China and India.

The precise motives of the Saudis are hard to penetrate. Some suspect the Kingdom wanted to put pressure on strategic rivals, including Iran or Russia. The kingdom may also have calculated that a period of lower oil prices is necessary to head off rising demand for electric cars or other rivals to fossil fuels.

But if the goal was to end the shale revolution, the Kingdom is likely to be disappointed.

Simon Smiles is chief investment officer for ultra high net worth at UBS Wealth Management while Giovanni Staunovo is commodities analyst at UBS Wealth Management

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