By Tim Worstall in Forbes 1/13/15
It’s easy enough to read the basic policy that OPEC is following over the oil price at present. They’re losing market share to unconventional oil producers and they’re not happy about that. So, they’re entirely happy to allow the price to fall so as to keep their own market share. The basic assumption is that those large conventional reservoirs will always be cheaper to produce from than those unconventional deposits. Thus, as the price falls, the unconventional producers go out of business, OPEC retakes market share and all is rosy in their garden. This does, however, depend upon the assumption that the unconventional producers are the higher cost producers. And while that’s definitely true of some of them, say the oil sands, there’s a remarkable claim out there that this isn’t particularly true of the shale oil developers. Which is something that is, if true, something of a problem for OPEC’s strategy.
The basic idea of what OPEC is doing is here:
“(OPEC) cannot continue protecting a certain price. That is not the only aim of OPEC,” said Suhail Mohamed Faraj al-Mazrouei, the U.A.E. oil minister, at an energy event in Abu Dhabi on...