CNBC: What the US Should Do to Fight the ‘Oil War’?

CNBC: What the US Should Do to Fight the ‘Oil War’?

This article originally appeared on CNBC:

Saudi Arabia, and its fellow members of OPEC, may have just launched an oil war. At the conclusion of its December conference, held in Vienna on Thanksgiving Day, OPEC, led by Saudi Arabia, decided not to cut oil production to halt the better than 30-percent drop in the price of crude oil this year.

For American consumers of energy products, that may very well be the best news of 2014. But the Saudis don’t appear to be letting oil prices drop out of the goodness of their hearts. Increasingly, energy experts are saying that the Saudis are using a menacing little maneuver to manipulate the price of crude back up by punishing companies – and countries – mainly the U.S. and its energy industry, by driving prices so low that the recent increases in domestic oil production will be scaled back dramatically as fracking becomes a money-losing endeavor for both marginal and major oil producers in the U.S. Read More Harold Hamm loses $10 billion from oil shock Unlike Russia, or other OPEC members, Saudi Arabia is said to have enough spare change that it can fund its government for several years to come, and, thus, can suffer plunging prices better than other producers. It appears that Saudi Arabia is ripping out a play from its 1986 strategy book when it flooded the energy market with crude oil in an effort to punish cartel members who were not abiding by their agreed-upon quotas and as a result, grabbing market share from Saudi Arabia.

Back in the 1980s, the Saudis were the so-called “swing producers” of OPEC, raising and lowering their output to maintain stable to higher prices on the world oil market. That, of course, came after the world suffered two oil shocks, one in 1973, as the result of Arab oil embargo, and again in 1979, during the Iranian Revolution. During that period, the price of crude gushed from about $2 a barrel to an all-time high of $35.

Read the full story at Reuters.


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