(Guest Post by Matthew Ladner)
So global stock markets have crashed and the price of oil has dropped below $40 a barrel. This interesting article however points out that if one conceptualize the oil glut as an attempt by the Saudis to crush American frackers it is not going to work because the frackers now represent mid-price rather than high-price producers. In other words, if the Saudis and Frackers have started a bar room brawl, it is a number of other producers who will wind up getting their proverbial jaws broken. Mid-price producers will be very likely to find the financing needed to survive while demand and supply balance. High priced producers will likely find themselves out of luck.
Alternatively you can think of it this way: $100+ per barrel oil created a massive over-investment in oil supply. Right now you don’t want to be the high cost producer or saddled with a massive welfare state financed on petrol. American frackers are neither of these things.