Arrogant OPEC members thought they could beat American shale oil producers into submission in a market share battle. But instead, they caught a tiger by the tail, and now the tiger is turning on them.
OPEC producers were bragging back in late 2014 that they had much lower costs of production than American shale oil producers and could easily win back market share by undercutting their prices. But they failed to take into account that they needed higher prices than shale oil producers because oil revenues largely support their national budgets.
Low oil prices caused huge national budget deficits in OPEC countries. They did hurt the smaller, leveraged shale producers; however, they were able to take advantage of the bankruptcy laws in the U.S., not a real option for the producing countries. Their best response is to devalue their currencies, but there are a host of economic issues associated with exercising that option.
Fresh data were reported by OPEC and the U.S. Energy Department recently. The data imply that global oil stocks will rise, instead of decline in 2017, even with the OPEC-non-OPEC production cutbacks. [Read more...]