After the prices go skyrocketing back up, the Western world will end up having one big hangover. The OPEC cartel nations have enough cash stored up to weather quite a long storm and are socially motivated whereas the West is nearly bankrupt and is profit motivated. From an impartial observation standpoint this article points out which nation(s), because of their motivating factor, is more prone to fallout.
Two civilizations are playing high-stakes poker and both have gone all in. Soon we’ll see who has what cards after all bets are in and they’re turned over.
…and at this moment, as the Obama administration is trying their hardest to destroy the U.S. oil and gas industry, it isn’t looking good for the West.
In the green corner we have the US shale producers. In the red corner we have the oil exporting countries of OPEC. Assuming the fight is fought to a conclusion, who wins?
OPEC wins. The US shale producers will shut down first. The reasons are:
• The US shale producers are motivated by economics, and all other things being equal will have an incentive to cut production at or around the point where production cost exceeds sales price.
• The OPEC countries are motivated by social imperatives. They have historically used their oil wealth to finance social programs, build infrastructure and subsidize basic foodstuffs and other items such as gasoline (which costs one cent/liter in Venezuela). Cutting back on social spending courts civil unrest and cutting back on oil production cuts spending, so they have a disincentive to cut oil production. (As long as the oil price exceeds cash production costs, which it does in all OPEC countries by a substantial margin, they in fact have an incentive to increase production).
But not all OPEC countries are created equal. Some can stand the pain longer than others, and here we will look into the question of who might go to the wall first if low oil prices persist.
My opinion? No OPEC country is going to stop pumping because of economic constraints, nor is any OPEC country facing budget shortfalls – which is all of them except for Kuwait and Qatar – so no one is going to cut production in an attempt to drive up the oil price. A more likely eventuality is that growing economic woes will lead to insurrections in some OPEC countries, and here I agree with Euan that Venezuela and Nigeria are prime candidates. (Iran bears watching too.) But as we have seen from recent events in the Middle East, oil has a habit of continuing to flow come what may. So barring a major uptick in global demand it’s conceivable that low oil prices could be with us for some time.
Full article: Oil Wars: Why OPEC Will Win (Oil Price)