(12-5-14) Led by Saudi Arabia, OPEC (Organization of Petroleum Exporting Countries) decided not to institute a oil production cut and that’s what hit the price of oil last week.
Saudi Arabia has made it clear that they want prices lower in order to squeeze out so-called marginal producers, but what they’re effectively talking about is US fracking shale production. They want to keep OPEC relevant since it’s still about a third of global production, but Saudi Arabia is launching a price war because it is in the best position -- given its fiscal reserves in hard currency – to survive a price war.
The idea is to shake out all the marginal producers by trying to drive the price down to the point where North Dakota’s Bakken shale production, which supposedly needs $65 to stay alive, goes away. Of course they’re not winning any friends here because they’re hurting other OPEC members and one of the key non-members Russia that need substantially higher oil prices and are not in the same fiscal state of health that Saudi Arabia is in.