Oil: How OPEC Lost the War

How OPEC Lost the War


Back in November 2014, OPEC ministers huddled in Vienna to discuss the dramatic fall in oil prices. Oil prices had plunged to their lowest point in four years. For decades, the cartel would suppress production sending oil prices higher, this time, however, was different. OPEC’s usual price manipulation schemes were not enough to shift oil prices.

The industry was changing. Fracking was the game changer that revived the shale industry and revived American’s dream of independent of foreign oil.

Once again Research and Development proves to be one of the most important facets of a business.

While OPEC members were distracted by under-cutting its competitors and striking oil production, the US were busy devising ways to extract oil and gas more efficiently. By employing unconventional means of extraction and investing more in technology, the techniques of US companies became more and more cost effective which brought down the breakeven point from about $60 to about $40 per barrel.

In 2011, former President Barack Obama devised a plan to decrease America’s dependence on foreign oil. Obama established a plan to reduce oil imports by one third by 2020. The strategy was composed in an effort to stimulate economic growth, create jobs and bring down the trade deficit.

The basic components of the plan:

  1. Invest in research and development
  2. Substitutes for oil
  3. Supporting stronger fuel efficiency

Oil Under Trump

Donald Trump promises to go not one, but five steps further.

A self-professed lover of fracking, Donald Trump intends to revise the Obama administrations rule which required companies to disclose chemicals used on federal land when fracking for oil and gas.

However, Trump may not necessarily be bullish for oil. The president plans to sell-off half the US reserve stockpile to help balance the budget. Although the proposal has faced pushback from Congress, the plan could undermine the US shale industry by flooding the market with supplies.