Is U.S. Fracking Killing OPEC?
Is U.S. Fracking Killing OPEC?
OPEC Strategizes Market Prices Relating To U.S. Shale Oil
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Energy: Despite cuts in oil output and threats of even more, the OPEC cartel can only watch in disappointment as prices for crude defy their efforts to raise them. Credit fracking for the cartel's loss of power over the world market.
These are desperate times for OPEC. On Thursday, oil prices plunged nearly 5% when it became apparent OPEC wouldn't cut output further, which would have put a serious dent in members' finances. Instead, the cartel will extend current cuts for nine more months.
In essence, they're declaring victory and going home.
Just three and a half years ago, the price for a barrel of West Texas Intermediate crude peaked at $110.62 a barrel. At the time, President Obama was pushing Americans to conserve and warning, "we can't drill our way out of the problem."
Turns out, we could. Today, oil prices are struggling to rise above $50 a barrel, thanks in large part to vast new supplies of crude on the market from American frackers. They've used technology to dramatically slash costs, so OPEC can no longer control the global market price.
As famed oil analyst Daniel Yergin said this week, there's been a "recalibration of costs" since mid-2014 that have let innovative U.S. producers make profits at far lower prices than ever before.
"When the prices started down, there was this widespread thinking $70 to $80 (a barrel, to be competitive)," Yergin told CNBC. "But it's been so innovative. It's almost like we're looking at Shale 2.0. It's almost a different industry than it was three years ago."
That's changing all the calculations about how much oil is in the ground. Forget "peak oil": Just this month, the U.S. Geological Survey found the so-called Spraberry Formation in Texas holds 4.2 billion barrels of recoverable oil at current prices, not the 510 million barrels estimated 10 years ago.
From basically nothing in 2000, frackers today produce more than half of all U.S. oil on the market.
With President Trump promising more exploration on federal lands and finally letting U.S. producers sell their product overseas, the U.S. fracking and oil industry has become, effectively, an anti-OPEC. OPEC is feeling the pain: In 2012, flying high, OPEC pulled in $1.13 trillion in revenue. Last year, that fell to just $433.4 billion.
The point is, fracking, horizontal drilling and new shale-oil extraction techniques will keep energy cheap for years to come, bringing real economic stimulus to America after 10 years of economic neglect. As for OPEC, sure, it will survive. But it's not likely to be the force in global markets it once was. The Saudis no longer call the shots, and Russia's Vladimir Putin is going to have a lot less cash available to finance his military adventures. At some point, OPEC may ask itself: Why even continue to meet?
If so, you can thank the innovative U.S. oil industry and its frackers for that.
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Hydraulic fracking is America's great breakthrough weapon vs. OPEC and the ticket to our energy independence.
There used to be a time when a disturbance to oil drilling in the Middle East was a major problem to the rest of the globe . Not anymore ...
Thanks to the drop in the price of oil the buying power of my Canada pension has been reduced by 25%.
I noticed that. A couple of foreign funds I have and like are down because of their reliance on commodities, I-shares Canada and I-Shares Australia which track their stock markets. Both are still good long term holdings.