In 2014 Saudi Arabia convinced the oil cartel OPEC to declare a pricing war against US shale drillers by flooding the market with crude oil. The move was intended to stop the 4.5-million-barrel-a-day production by the shale drillers and send them running for the hills. The shale drillers held their ground and kept on drilling causing OPEC’s move to backfire.
The result was a surplus of crude oil in 2015 that has kept gas prices low across the country throughout most of the year.
OPEC recently made a decision that could result in moderate gas prices for us well into mid-2016.
In a December 4, 2015 meeting in Vienna, OPEC rejected proposals by Venezuela and other members to cut production and possibly force prices back up. Instead, the cartel doubled down on it’s prior decision to flood the market by increasing its collective output ceiling to 31.5 million barrels per day from the previous 30 million bpd in an attempt to sweat shale drillers out of business and push down US oil production.
The decision sparked an immediate decrease in gas prices.
The OPEC cartel believes gas prices will rise soon enough and they will be back in the driver’s seat.
When that happens it’s back to:
However analysts and industry insiders say if things actually go OPEC’s way, it will take until the second half of next year for prices to begin rising. More likely, according to many analysts, is another year of prices more or less in the current band. And after that, says the International Energy Agency, prices will go back to just $80 a barrel, and there only in 2020. That’s almost double today’s price, but about 20% lower than the $100 a barrel to which OPEC had become accustomed in recent years.
Now while you and I reap the rewards at the pump as a result of OPEC’s chess match with oil production there is a down side for some Americans in the oil industry.
CNN Money reported :
Cheap oil might great for most Americans, but it’s also killing jobs in the once-booming energy sector. That’s especially true in oil-centric states like Texas and North Dakota.
The mining sector, which includes oil and energy companies, has shed 123,000 jobs since the end of 2014, according to government stats. Other energy workers have been forced to take painful pay cuts.
And the shale miners that stood up against OPEC’s first shot at them are running out of funds.
“The collapse of oil prices has forced drillers to become more efficient, adding more wells per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed companies to continue to post gains in output despite using fewer and fewer rigs.
However, the efficiency gains may have been illusory, or at best, incremental progress instead of revolutionary change. Rather than huge innovations in drilling performance, companies were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots – perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail in a great October 21 article.” [SOURCE]
OPEC is going to eventually win this one. They have the resources to ride the low price tide until the shale drillers are no longer an impediment.
What does this mean for gas prices while all of this plays out?
Expect low prices well into the first quarter of 2016. Enjoy your 2015-16 Christmas and New Year’s motoring. Send me a gift with some of that money you’re saving on gas.