Oil Wars: Why OPEC Will Win -- Roger Andrews, Oil Price
In the green corner we have the US shale producers. In the red corner we have the oil exporting countries of OPEC. Assuming the fight is fought to a conclusion, who wins?
OPEC wins. The US shale producers will shut down first. The reasons are:
• The US shale producers are motivated by economics, and all other things being equal will have an incentive to cut production at or around the point where production cost exceeds sales price.
• The OPEC countries are motivated by social imperatives. They have historically used their oil wealth to finance social programs, build infrastructure and subsidize basic foodstuffs and other items such as gasoline (which costs one cent/liter in Venezuela). Cutting back on social spending courts civil unrest and cutting back on oil production cuts spending, so they have a disincentive to cut oil production. (As long as the oil price exceeds cash production costs, which it does in all OPEC countries by a substantial margin, they in fact have an incentive to increase production).
Read more ....
Update #1: The Relentless Production of Shale Oil Is Breaking OPEC’s Neck -- Peter Coy and Matthew Philips, Bloomberg Businessweek
Update #2: Falling oil prices shake economies of Iraq, Russia -- CSM
My Comment: Market forces always (in the end) dictate prices. And for the moment .... it appears that the new bench-mark price for oil will be $60 - 70$ .... which is A-OK with me.
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