Quotation: "Saudi Arabia Just Shattered OPEC, Won’t Reduce Oil Production"

Published in the Daily Caller

“The widespread perception that OPEC has been operating a coalition in the last 30 years is incorrect,” Omar Al-Ubaydli, a senior affiliated research fellow with the George Mason University Mercatus Center, told The Daily Caller News Foundation. “OPEC countries have been violating their quotas and basically mimicking the production levels of non-OPEC countries ever since the 1970s, and it’s just a strange configuration of incentives that keeps fueling the false perception of the OPEC monolith.”

Al-Ubaydli points out OPEC has always been substantially more fragile and less interested in global politics than it appears to Americans.

“OPEC’s members are locked in a geo-strategic battle that has nothing to do with oil,” said Al-Ubaydli. “For example, how on earth are Saudi Arabia and Iran going to coordinate oil output if they don’t even have diplomatic relations?”

The rise of the United States as a major producer and future exporter of oil completely alters the oil market in a way that isn’t good for OPEC. America surpassed Russia’s production of oil last year, and is now the world’s largest and fastest-growing producer of oil and natural gas. This is almost entirely due to the dual innovations of hydraulic fracturing, or fracking, and horizontal drilling which have made drilling for shale oil economical.

“[S]hale oil means that even if they did coordinate, demand for OPEC oil is more sensitive to price than in the past, because when the price of oil rises, shale oil producers quickly come online and steal OPEC market share…shale oil places an effective price ceiling that won’t be relaxed any time soon. While I expect oil prices to return to around $50-$60 a barrel in the coming 18 months, they won’t rise much more than that.” Continue