Oil strikes

February 9, 2015

Is OPEC’s low oil price gambit working?

Oil prices have been in a consistent free fall since a June high, and OPEC appears to be just fine with that. Some analysts have speculated that the cartel’s approach suggests an intent to let prices become low enough for U.S. shale producers to blink. This may be happening. As this Reuters graphic shows, according to data from Baker Hughes, 1,609 oil rigs were active on Oct. 10, 2014, but that number fell to 1,140 last week, the lowest since 2011. As oil prices continue to fall, the break-even point for shale extraction comes into play, and companies eventually don’t see the value of pulling oil out of the ground.

James Williams, president of WTRG Economics told Bloomberg last month, “OPEC’s strategy is working, and it will be obvious in U.S. production by midyear when growth from shale plays will come to a halt. You can imagine the impact on any industry from a 50 percent impact on sales.” Of course, some cartel members can afford to wait and some have much less leeway. While larger OPEC countries have hundreds of billions of dollars of oil and cash reserves, others, like Venezuela, are in dire straits.

Meanwhile, the United Steelworkers Union is leading the first nation-wide oil refinery strike in the U.S. since 1980, citing safety issues; the same boom that has driven down prices has led to more injuries and deaths for oil workers. This has to be the last thing domestic producers want to deal with right now, but with hundreds of billions of dollars at stake worldwide, it seems everybody is in the mood to play hardball.


One comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

So as the American economy shows signs of genuine recovery, unions in the oil fields and on the docks decide to throw their monkey wrenches into the works? Typical.

These people need to be summarily fired and their “union” jobs given to those who just might appreciate them…non-union workers. The sooner, the better.

Posted by OneOfTheSheep | Report as abusive