IT WORKS FOR ME: Strap In For A Long Oil Price War.

Saudi Arabia has strong-armed the rest of OPEC into going along with its strategy not to cut production in a bid to gain market share on U.S. shale firms, and ahead of the cartel’s semi-annual meeting next month there’s little sign that any dip in output is forthcoming. By abdicating the role of the global swing producer, OPEC believed it would put pressure on the relatively high-cost shale boom, forcing producers to trim production as certain plays became unprofitable.

But U.S. firms haven’t assumed that role as readily as the Saudis would have hoped. Rather, they’ve been hard at work innovating their way to profitability even at $65 per barrel. True, shale growth is expected to slow this year and the next, but it isn’t going away. Combine that with production growth from other non-OPEC producers, and what the cartel is left with is a longer-term price war than it likely bargained for. . . .

The Saudis have the funds to make up for the budget shortfalls cheap oil is foisting upon them, but the rest of OPEC isn’t anywhere near as well prepared. Nigeria, Iran, and Venezuela have all agitated for the cartel to take action, though none have volunteered to be the one to actually make the necessary cuts. Saudi Arabia is realistically the only member capable of meaningfully moving the market, but it no longer seems willing to take one for the team, as it were, and cut production. As the IEA pointed out, this price war is only just beginning.

I can live with that.