OPEC producers are cutting production… or so they say.
And in addition, several non-OPEC producers, like Russia, are also cutting production. If history is any guide we could do away with the titles and simply call the Organization of the Petroleum Exporting Countries, and all the rest, the Energy Liars’ Club.
They often say one thing and then do another.
Even Saudi Arabia’s Oil Minister noted that OPEC members have a history of lying to each other. I don’t care how they treat each other. I’m only interested in how their actions – not their words – affect the money in my pocket.
For all their dramatic statements and grand pronouncements of deals that I don’t think will ever be honored, they’ve actually already provided the United States a great service.
In their quest to kill the American fracking industry, the Saudis have made the frackers stronger.
When the competition didn’t roll over and die, the OPEC members were forced to concede defeat and take a new line of attack (the recent production cuts). It won’t work, and that’s just fine for me, because it means cheap energy is here to stay.
In 2014, oil cost about $100 per barrel. At the time, frackers were riding high. More than 1,000 rigs were at work in the U.S., breaking apart rock with hydraulic might to tap new sources of oil. Energy employment was surging, and home prices in North Dakota were rising too. The Saudis, who are the largest OPEC producers, weren’t happy.
$100 oil was a good thing, but the insurgent American frackers had driven U.S. oil production above Saudi production, and the kings of oil weren’t interested in being displaced. So they ramped up production.
As OPEC members opened the taps, and demand growth remained steady but sluggish, the imbalance between supply and demand took its toll. Oil prices started to slide, and the trend picked up speed in the second half of 2015. By early 2016, we hit the bottom, just under $30 per barrel.
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