ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Shale Oil - At OPEC's Mercy?

Shale Oil - At OPEC's Mercy?

With the price of crude oil falling sharply, the US shale oil industry is at the edge of a precipice.

The slide in the price of crude oil from $100 a barrel in June to below $65 seems to have brought the political economy of oil back centre stage. On 27 November, the Saudi Arabia-led Organization of the Petroleum Exporting Countries (OPEC) took a decision, even in the face of plummeting oil prices, to maintain production at 30 million barrels per day. And, now, it has projected planned production in 2015 at 28.9 million barrels a day, a mere 1.1 million barrels a day lower than what it produced in November, this even in the face of the world economy most probably sliding into a new downturn. Perhaps OPEC has set a floor somewhere around $60 a barrel, making sure that many more than the marginal producers of shale oil in the United States (US) go out of business.

The current slide in price of oil can be explained by two factors: one, a decline in demand in the face of stagnation in the world’s major economies and a slowing down of growth in the so-called emerging economies, and, two, the dramatic increase in oil production in the US in the wake of the exploitation of shale oil.

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