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Crude Economics
OPEC Sets Up U.S. Shale Showdown
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  • Andrew Allison

    There’s something more at work here. I don’t think that the Saudis can be unaware that the average US shale production cost is under $60/bl and falling. This suggests to me that, as the member with the lowest breakeven price they are playing beggar-thy-neighbor with the other members of OPEC, most notably Iran. In other words, this may well be a manifestation of the Sunni/Shia divide.

    • S.C. Schwarz

      Exactly. A lower price may slow the pace of future shale development but it will do nothing to stop wells already drilled. In addition, if the price goes back above $100 a barrel we can, and will, step up shale production again. (Assuming Obama hasn’t shut down the whole fossil fuel industry by then.) The Saudi’s understand this perfectly well. This is geopolitics not economics.

    • Corlyss

      Excellent point, Andrew.

    • Tom

      It might also be the case that they’re going after Russia as well.

      • Lorenzo from Oz

        Since they hate the Assad regime, which Russia supports, yep.

  • Pete

    Interesting, All the OPEC members merely pump the oil out of the ground while only the U.S. innovated and created new technology.

    And of course, the ability of the OPEC country to even extract oil is due to earlier U.S. innovations. .

    Understand this and you can understand a lot about the world.

    • FriendlyGoat

      Yes, but you have to admit that our innovation machine was several decades late on this particular matter. We needed it the day OPEC was formed——before we sent trillions of dollars to prop up Islam.

  • Fat_Man

    US average cost makes no difference. If the market price is too low, it will cut back exploration, but producing wells will still produce. The marginal cost of keeping them in production is very low.

  • Jacksonian_Libertarian

    OPEC oil producers are all state owned monopolies, and their wells are old and dated with falling production and rising costs. There is no way they will be able to compete with private American shale oil producers who already have huge momentum behind them in both producing more oil per well and cutting the costs of production. The price of production of American Shale oil in the US has been falling at about 10% per year, so the longer the price war goes on, the greater the American price advantage. The smart thing for America to do now is make the capital gains on Oil development tax free, open up public lands for shale oil development, and break the un-American OPEC oil cartel.

    • FriendlyGoat

      Everything you want is already happening without need for reduction of capital gains rates to zero on this industry or any other. Do you guys EVER stop demanding giveaways to the richest speculators in the world? Oh, you say, it’s not for “those guys”.
      Who on earth do you think you are going to attract into any “tax-free” business?

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