How OPEC lost control of the oil market

Mark Mills:
It’s entirely feasible for America to become a far bigger oil exporter, even one of the biggest.

Only a few years ago America’s policy makers were wringing their hands about “peak oil” and dependence on imported fuels. Now headlines feature the return of oil gluts. What happened? Saudi Arabia undertook a “stress test” of America’s oil-and-gas industry that produced unintended consequences.

We’re witnessing the first signs of a new normal in oil markets. Call it Shale 2.0, characterized by a potent combination: eager and liquid capital markets funding hundreds of experienced (now-lean) small to midsize companies that can respond to modest upticks in price with a velocity unseen in oil markets in eons—all using shale technology that is shockingly better than before and poised to keep improving.

This year sees the U.S. not only filling storage tanks to the brim but also exporting more than a million barrels of crude oil a day. Exports are at the highest level in American history, twice the previous crude export peak in 1958. The U.S. is exporting more oil than five of the Organization of the Petroleum Exporting Countries’ 13 members.
The reaction of OPEC to the shale revolution turned the cartel into a suicide pact as its members flooded the market using predatory pricing to try to drive competitors out of business.  They utterly failed, and now must contend with shale producers whose cost are more competitive than their own.

It should also be noted that the shale producers have also limited the growth of Russian exports and the ability of Russia to extort concessions from Europe.


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