By: Dividend Sensei
OPEC Is Obsolete, America Is The New Swing Producer
OPEC’s price war left a devestating crater in petro state finances, with revenues plunging by $670 billion and budget deficits soaring to as high as 20% of GDP. Given that the wave of US shale bankruptcies didn’t seem to have the intended affect (those assets were sold at bankruptcy sales for pennies on the dollar to stronger companies), Saudia Arabia’s oil minister was forced to retire. His replacement decided to immediately reverse course and organized an OPEC and Russian production cut, that sent crude prices doubling to as high as $55.
Of course, with US shale production now far leaner and more efficient, US shale producers stepped into that void and are once more winning market share. In fact, the US Energy Information Administration or EIA, estimates that in 2017 US production will increase by about 200,000 barrels per day, and then hit an all time record in 2018.
Which is why the announcement of the 9 month extension didn’t cause crude prices to rise. Not only where they expected, but the market was basically admitting that the age of OPEC is over. No longer than the cartel dictate world oil prices because hyper efficient US shale producers are ready to step in on short notice, and ramp up very low cost drilling, that can send US production soaring to make up for any production cuts OPEC or Russia decides to do.
And thanks to the lifting on the US oil export ban, America now stands ready to also fill any deficit that occurs from regional instability or natural disasters in the Middle East.