Isaac Orr | Thanks To Fracking, OPEC’s Chickens Are Coming Home To Roost

via Independent Journal Review:

 

Fracking - OPEC (200x200)Thanks To Fracking, OPEC’s Chickens Are Coming Home To Roost

by Isaac Orr | March 16, 2016

Plummeting oil prices, which are largely the result of the U.S. hydraulic fracturing revolution that has nearly doubled oil production in the United States since 2008, have left many oil-exporting nations around the world reeling.

The fracking revolution virtually guarantees OPEC’s pain is unlikely to let up anytime soon, and they deserve every bit of it.

Before the rise of fracking, these oil-exporting nations often conspired together to deliberately keep oil production low, thereby artificially raising oil prices. This allowed them to use higher revenues to benefit their populations at the expense of people living in oil-importing nations, such as the United States. Americans have for decades paid higher oil prices than a truly free market would dictate, but with the rise in domestic oil production, the power of OPEC has been reduced markedly.

Fracking has fundamentally altered the way oil and natural gas are produced. Rather than investing billions of dollars and five to 10 years in large offshore oil projects or drilling in the Arctic, oil companies are beginning to flock to shale oil fields, which can typically be drilled within 20 days and cost a few million dollars per well.

In an effort to drive many U.S. oil producers out of business, OPEC has chosen not to decrease its production, thereby allowing the market price of oil to continue to decline. OPEC hopes it can destroy its competition and then reinstitute its low-production policies to drive prices back up, but according to Daniel Yergin, a leading scholar on energy and geopolitics, this strategy will ultimately be unsuccessful.

Because of fracking, OPEC’s strategy to keep oil prices artificially high by limiting oil production is no longer effective, and the current “price war” is destined to fail as a result.

Don’t feel too bad for these regimes, though; OPEC’s chickens are simply coming home to roost. (Read More)

 

Read the full article on the Independent Journal Review

 

 

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