Tuesday, January 13, 2015

Saudi Prince Ilweed bin Talal on Oil Prices

Saudi Prince Ilweed bin Tala on Oil Prices

Americans have been reveling in low gas prices wondering if they are in a time warp.  Many do not realize that petroleum prices have plunged because of American entrepreneurial ingenuity and Saudi backup strategy.

The shale oil which is being extracted due to fracking in  American oil wells on private land is creating some oversupply.   Saudi Arabia is not cutting production.  This is not simply because others in OPEC would not respect production cuts but is part of a long term strategy.

Fracking is an effective way to get more yield out of an oil field, but it is only economical at certain prices, which are believed to be around $55 a barrel.  If OPEC can keep flooding the market and keeping oil prices low, it becomes uneconomical to do more fracking ventures.  

The oil industry can not start up on a dime due to infrastructure and regulatory impediments. For example, the  moratorium which President Obama imposed after the BP Deepwater Horizon spill chased away jobs, as uninstalled oil rigs were sent away from the Gulf of Mexico to more productive waters.  If fracking becomes unproductive for a prolonged period, the equipment may be reallocated to other sectors.  If not, an overreaching EPA and lawfare can slow down a renewal of fracking. 

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