Oil Wars: Why OPEC Will Win

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).

Bank of America sees $50 oil as Opec dies

“Our biggest worry is the end of the liquidity cycle. The Fed is done. The reach for yield that we have seen since 2009 is going into reverse”, said Bank of America.

The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over coming months as market forces shake out the weakest producers, Bank of America has warned.

Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a mucher cheaper source of gas for Europe.

Francisco Blanch, the bank’s commodity chief, said Opec is “effectively dissolved” after it failed to stabilize prices at its last meeting. “The consequences are profound and long-lasting,“ he said.