Oil prices-look out below!

(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.

 

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2 Responses to Oil prices-look out below!

  1. The Saudis may have their eye on Iran more than on the frackers. Depriving Iran of oil revenue is a national security interest for the Saudis since every additional dollar might be used to fund Iranian backed allies in Iraq, Syria, Lebanon, and Yemen — all of whom are threatening to surround and subvert the Saudis and their Sunni allies.

  2. matthewladner says:

    Yep- although the Saudis stated rationale for not cutting production seems entirely reasonable (why should the low cost producer cut production in order to make room for the high price producers?) I strongly suspect that they are more interested in bankrupting the Mullahs than American wildcatters.

    This makes it all the more sickening that the Obama administration has gone to such extreme lengths to undermine our traditional allies in the region.

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