Oil prices keep plummeting as OPEC starts a price war with the US [View all]

[joshcryer]

Oil prices keep plummeting as OPEC starts a price war with the US
Oil prices have been dropping sharply over the past three months — a huge energy story with major repercussions for dozens of countries, from the United States to Russia to Iran.

But on Friday, prices went into serious free-fall. The reason? OPEC — a cartel of oil producers that includes Saudi Arabia, Iran, Iraq, and Venezuela — had a big meeting in Vienna on November 27. Before the gathering, there was speculation that OPEC countries might cut back on their own oil production in order to prop up prices. But in the end, the cartel couldn't agree on how to respond and did nothing.

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For all intents and purposes, OPEC is now engaged in a "price war" with the United States. What that means is that it's very cheap to pump oil out of places like Saudi Arabia and Kuwait. But it's more expensive to extract oil from shale formations in places like Texas and North Dakota. So as the price of oil keeps falling, some US producers may become unprofitable and go out of business. The result? Oil prices will stabilize and OPEC maintains its market share.

The catch is that no one quite knows how low prices need to go to curb the US shale boom. According to the International Energy Agency, about 4 percent of US shale projects need a price higher than $80 per barrel to stay afloat. But many projects in North Dakota's Bakken formation are profitable so long as prices are above $42 per barrel. We're about to find out how this all shakes out — and which numbers are correct.

Fairly long article with a lot of background. Shale is here. And it's here to stay. OPEC can try to slow its expansion but it's inevitable. If OPEC was smart it would signal that it will lower production in exchange for petro-states pledging to go energy self-sufficient.