After A Bloodbath In Oil, What Next?

As we tucked into Turkey and football last Thursday, OPEC announced no output cut, no target price and no output ceiling. Sounds like a lot of no news, but the OPEC meeting has been described in historic terms. Bloomberg's headline declared that war had broken out: “Oil enters new era as OPEC faces off against shale; who blinks as price slides toward $70?” The accompanying article made the case that OPEC is indubitably locked in a price war against U.S. shale producers. Oil prices plunged on the OPEC news. West Texas Intermediate crude is now at $65 a barrel. It was $107 back in June. That Bloomberg article had my favorite quote of the week, from Leonid Fedun, a board member at Russia’s Lukoil. Fedun said that by maintaining output levels, OPEC would bring about an outright crash among U.S. shale drillers. “In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” said Fedun. “The shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish.” That America’s shale operators will be hard to kill isn’t lost on OPEC. Argus Media quoted the Iranian oil minister as saying that squeezing non-Opec production out of the market will take years rather than months. Indeed there’s a real question as to how much pain OPEC nations and other exporters will be willing and able to endure at the hands of the Saudis. Oil journalist Derek Brower tweeted from Vienna last week that there was lots of anger at the OPEC meetings, with Algerian and Venezuelan oil ministers “furious” that the Saudis refused to cut output. An Iranian oil ministry source told Brower that Iran thinks the Saudis are trying to ruin both it and Russia...more