Lower Crude Oil Prices Already Pinching Producers - #Oil #UNG

By Bob Adelmann

Lower crude oil prices may also knock into a cocked hat OPEC’s strategy of challenging America’s oil producers in a price war. The strategy is simple: Keep on producing, which will continue to push crude oil prices down to the point where America’s oil producers can’t afford to stay in the game. It’s a classic move by a cartel that thinks it’s a monopoly: Squeeze out the marginal players and then enjoy the rewards when prices go back up.

Tim Mullaney, writing for MarketWatch, thinks OPEC’s strategy will backfire:

There are at least three big problems with [OPEC’s] strategy. One, North American crude isn’t as expensive to produce as it used to be. Two, there’s more than you think in the pipeline to make it even cheaper. And third, OPEC nations, including Saudi Arabia, have squandered their [oil revenues] on welfare states [that they] can’t easily cut back.

In North Dakota, for instance, the average cost per barrel is only $42. In McKenzie County, the average cost among its 72 oil rigs is just $30. For OPEC to have any chance of eliminating North Dakota’s producers, it would have to suffer immense and painful losses for a very long time. . . . There is a very good chance that OPEC, if it persists in staying in a game it cannot hope to win, may destroy the very members of the cartel it is trying to help.

Read the full article here.

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