The oil war is pretty much over, and Saudi Arabia lost. How did the world’s most powerful oil producer, which set prices for decades by riding herd over the member states of the Organization of Petroleum Exporting Countries, get it so wrong?
In a word: shale. The Saudis underestimated not only the strength and flexibility of the American shale-oil industry, but also that of the financing machine behind it. American capitalism proved to be the superior fighting force.
The Saudis sat uneasily for a decade as they watched the shale-oil industry go from technological curiosity to production juggernaut, propelling the United States into the global energy big leagues. At last count, total American oil production (from conventional, offshore and shale wells) was about 9.2 million barrels a day, not much less than that of market leaders Russia and Saudi Arabia.
Their global market share withering, the Saudis lost all patience and finally snapped a year ago. Production would not be reined in to prop up prices. Saudi Arabia and any other OPEC member with spare capacity opened the spigots and a flood of oil sloshed through the global markets.
In mid-2014, oil was trading at $100 (U.S.) a barrel or higher. By the start of this year, it had fallen to $30, a price that was transmitting pain to every sector of the oil industry.
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