It was all so simple. By lifting restraints on output, Saudi Arabia would stop subsidizing high-cost oil producers and halt the rapid rise in U.S. shale oil production.
The goal was to stop U.S. shale oil production from eating into OPEC’s market share. At least, that was the logic back in November 2014.
The plan was so simple. At least, that was the logic back in November 2014.
But things haven’t gone according to plan. OPEC’s four-month experiment with production curbs has failed. Furthermore, the strength of shale’s rebound suggests that OPEC faces a long-term struggle against this new source of supply in an industry. In shale, technological advances are the norm. And today’s niche play becomes the next decade’s global standard.
Even when OPEC restored production curbs last year, Saudi Energy Minister Khalid al-Falih said he didn’t expect a big supply response from American producers in 2017. Instead, it turns out that response had already begun, and it is much stronger than anyone had expected.