The Demise of King OPEC
The rise of U.S. shale oil has signaled the beginning of the end for almighty King OPEC. But it has been Saudi Arabia that has hammered the nail in the coffin for the King. OPEC effectively worked in the 1970s influencing world oil supply and price because all members acted as a cohesive unit. Because of the enormous clout of growing U.S. shale oil, the Saudis now realize they can act with OPEC or act in their own self-interest. They can help raise the price of oil or maintain their market share in the United States. The Saudis realized that U.S. shale oil production is not going to decrease but increase in the coming years. Raising prices is a short-term solution that provides no long-term help for when the U.S. replaces Saudi Arabia as the World’s largest oil producer. Thus, the Saudis decided to keep prices low and maintain market share in the United States. With the World’s largest oil producer effectively bailing on the organization, OPEC can be seen as the once great giant that ruled the world with a black fist of gold and has now tumbled from his previously untouchable throne.
-Reeves Favrot is a research associate at the National Center for Policy Analysis
It is important to note, though, that Saudi Arabia does have a rain-day fund and excess oil reserves for moments like this. They would probably be able to withstand long periods of breaking-even, more than most other countries at least.