There is going to be a most interesting OPEC meeting on November 27 that many economists around the world will be watching.
Oil prices fell to a three-year low Tuesday as Saudi Arabia cut prices of crude exported to the U.S., raising the threat of a bruising battle for market share that threatens the U.S. energy boom even while it could bring ultra-low gasoline prices. Moves of this type also strongly impact Russia where any revenue they can create is much needed.
A barrel of U.S. crude fell as low as $75.84 Tuesday before rebounding to $77.19, down 2% for the day and the lowest closing price since Oct. 4, 2011.
I am certainly no economist but from this blogger’s perspective it is most clear the moves by the Saudis over the past weeks is all aimed at the desert kingdom cutting prices to the U.S. to contend with upstart shale producers who have not yet found reason to meet on common ground with the major producers. To win the showdown the Saudis are trying to bring OPEC’s weaker members in line before the Nov. 27 meeting.
Two events are taking place at the same time.
First, OPEC is feeling the power of the historic expansion of U.S. production from hydraulic fracturing and horizontal drilling. U.S. fields are pumping 8.97 million barrels a day, the most since the 1980s. Make no mistake the concerns is real for the OPEC as our shale boom sets up a direct challenge as we position ourselves to replace Saudi Arabia and Russia as the world’s largest oil producer.
Second, global consumption for oil will increase the least since 2009 as economic growth slows in Europe and Asia.
All which is making the November 27th meeting a most interesting one, indeed.