Energy The American Oil Boom Won’t Last Long at $65 Per Barrel

Courtesy of BusinessWeek. By Matthew Philips

So maybe OPEC does still matter. After deciding to keep its production levelsunchanged at 30 million barrels a day and triggering Friday’s nearly 10 percent selloff, the cartel proved it can still cause huge swings in oil prices‐even if it’s in the opposite direction that most of its members wanted to see.

Iran, Iraq, Libya, and Venezuela were all hoping for a cut of at least 1 million barrels to keep prices from going lower. Citibank (C) analysts estimate that the world is producing about 700,000 barrels a day more than total demand requires. With international oil prices below $70 for the first time since 2010, most OPEC member countries will have trouble keeping their budget deficits in check. According to anestimate by Goldman Sachs (GS) last month, only Kuwait, the UAE, and Qatar are safe below $70.

OPEC’s idea is to try to knock out U.S. shale producers by driving prices lower than they can afford. That way Saudi Arabia, the cartel’s biggest exporter, can keep its market share in the U.S. But the damage to its fellow oil exporters could be severe. In Russia, for example, the ruble is plummeting. Iraq is already having trouble fighting ISIS, and lower oil prices won’t help. Libya is in chaos. Venezuela’s economy, already on life support, depends on oil for 95 percent of its export revenue. Iran’s oil minister on Friday told Bloomberg News that he has doubts the strategy will even work: “There’s no fact or figure to say that shale production will definitely decrease,” he said.

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