All the news in the oil patch this morning is centered around the fact that yet another OPEC meeting to come up with some sort of plan to limit total oil output has gone bust.
What else is new?
Here’s my take – we have no doubt that beginning in November of 2014, the Saudi’s, along with the rest of OPEC decided, that they could withstand lower oil prices better than the higher cost US Shale Oil producers and thus opted to do nothing to limit oil production. Their clear intent was a resulting fall in oil prices which would then inflict serious harm on the US shale producers forcing them out of the arena lowering total US oil output in the process.
It worked; sort of.
The US shale industry has gone through a great deal of pain since that time and in many instances, still is. But like any industry hurt by low prices, the result has been a culling of the weaker firms and a push towards more efficiency and better productivity that comes from streamlining operations and cutting expenses to become “lean and mean”.
The US oil industry has survived and will continue to survive.
What looks to me like it will not survive however is OPEC as an effective cartel. Compared to its clout back in the 70’s during the “Arab Oil embargo”, OPEC is a toothless old lion which can make a great deal of noise when it roars but is incapable of instilling fear among its rivals.
All its strategy did was to reveal how hopelessly divided it is and how its own divisions and internal rivalries has gutted its once formidable power.
Frankly, it could not have happened to a more deserving group. Good riddance.
Comments
Log in or sign up to join the conversation.