I swore off the news a few days ago, but something crept through my filter:
At first, people thought that OPEC was purposefully keeping prices low (by not reducing supply) in order to smother the emerging shale industry in the crib. With low oil prices, less investment would flow to alternatives to conventional oil, which can be expensive.
But, as Bloomberg reports, that might not be the answer. The answer increasingly seems to be that OPEC isn’t raising prices because it can’t raise prices.
The cartel isn’t holding. The smaller OPEC members don’t want to shrink output — which would have to happen to raise prices — because their economies are too unstable and they can’t afford it. Even Saudi Arabia, the most important OPEC member, is in favor of staying the course.
But more importantly, everyone in OPEC knows what would happen if they tried this: U.S. oil producers would put back online all those rigs that they have idled since prices plummeted.
This is momentous and important news, so of course it is under-reported. OPEC is for all intents and purposes dead, and the price of oil, which has already dropped 300% since 2008, will remain stable at around $50 a barrel for the foreseeable future. This is a huge boon for both industrialized and developing nations, and very bad news for many oil producing nations, such as Venezuela, Russia (in a recession), and of course our enemies and frenemies in the Middle East.