From $50 a barrel during the middle of October, benchmark West Texas Intermediate (WTI) crude has declined more than 30% to trade at $34 lows by mid-December. The unwillingness of OPEC to cap its production, even against a backdrop of six-year lows, has many speculators calling for further decline, with forecasts of previously unthinkable mid-$20 barrels rife.

We are approaching the absolute break-even point for oil production, if we haven’t done so already. This is the point at which oil producers will turn off their wells because they are losing too much capital per barrel produced. Once this happens, classic supply and demand means a contraction in supply should translate to a reversal in price. This is exactly what OPEC is betting on by flooding the markets to put the American shale industry out of business. This eventually will happen because shale is running out of breath underwater, and from there the most efficient producers with the best economies of scale will be the ones to gain the most.

The obvious frontrunners are the incumbent oil producers with the lowest costs of production. Royal Dutch Shell PLC (NYSE: RDS-A) is down 21% year to date, and the market currently values the company at just shy of $140 billion. However, Shell has generated more than $400 billion revenues in each of the past three years, and it looks on track to generate a little over $300 billion this year, even with the collapse in oil prices. With annual revenues at more than twice its market capitalization, Shell looks to be a classic value play for an investor with an even mildly optimistic take on the future of the space.

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