Postscript to OPEC’s Disastrous Price War: The Cartel Hosts U.S. Producers Over Houston Dinner to Encourage New Cooperation

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2 MIN READ - An "OPEC licks its wounds all the way to Houston" update from the Cautious Optimism Correspondent for Economic Affairs and other Egghead Stuff.

After a failed multi-year predatory pricing campaign to bankrupt U.S. shale producers, OPEC hosted an extravagant dinner in Houston for their still-here and still-vibrant American competitors in March. 

Although U.S. antitrust and collusion laws prohibit explicit discussion of price-fixing, the wink-and-nod message over steak and wine to U.S. producers was “Why don’t you play along and cut production too and we can all enjoy higher prices?”

(see Reuters article at: https://www.reuters.com/article/us-ceraweek-energy-opec-shale/u-s-shale-and-opec-share-steak-in-uneasy-truce-at-houston-dinner-idUSKCN1GJ04H)

Effectively OPEC’s old story and new strategy have become:

1) We couldn’t beat you (U.S. shale oil)

2) We lost hundreds of billions of dollars trying, pumping oil at full capacity even as prices fell to $50, $40, $30, and even $26 as our government budgets rely on $45+ oil simply to run the county (Saudi Arabia)

3) We need to get oil prices back up to $100+ to recoup our staggering losses

4) So how about informally joining the cartel and restraining output?

5) Because every time we cut production you guys step in to pump more oil, frustrating our efforts to raise prices to over $100.

Considering that OPEC was trying to destroy the very same firms as recently as a year ago, U.S. producers weren’t too keen on cooperating. Although many pleasantries were exchanged at the dinner, the message from shale oil exploration and production CEO’s to the press afterwards was “nothing has changed.”

Good for them.

In other news, Citigroup predicted earlier this month that the USA will become the world’s largest petroleum exporter next year (defined as crude oil + refined petroleum product exports).

(read here: https://www.bloomberg.com/news/articles/2018-04-26/citi-says-u-s-may-become-world-s-top-oil-exporter-next-year)

Didn’t President Obama famously contend in 2012 that...

“We can't just drill our way to lower gas prices?” 

OK if he's right, then ask yourself where would the price of oil and gasoline be  today if the U.S. wasn't adding 10.4 million barrels-per-day of supply to the world market to counter OPEC’s recent and very aggressive production cuts?

Very easily over $100 a barrel—again, $5+ a gallon—again.