Steven C. Kyle, an expert in macroeconomics and government policy and an economics professor at Cornell’s Dyson School of Applied Economics and Management, says that increased U.S. shale-oil production, sluggish economies and Russian oil output have successfully driven down oil prices – but prices will eventually rebound due to demand from China and India – and that OPEC is still in business.
Kyle says:
“Increasing U.S. shale output and sluggishness in some of the world’s major economies have indeed induced some slack in world oil markets. The response of Russia – they are not alone in this – has been to increase production because Putin needs the money badly to keep his country moving – and himself in power. This makes the price declines even steeper. With Saudi Arabia and other OPEC members unwilling to restrict production to keep prices high we see the situation we are now in.
“However, this is not going to be the end of OPEC. We have seen similar situations of oversupply relative to demand in the past and there were similar wishful predictions that it was the end of OPEC – 1985 was a particularly good example. It wasn’t the end of OPEC then and it won’t be now.
“Fracking is a relatively expensive technology and at present prices we can expect to see a decrease in new wells. Eventually, the decrease in exploration will restrict supply and with growth in demand from large developing countries such as India and China, not to mention a new surge in gas guzzlers in the U.S., prices will recover and so will OPEC.
“So, the bottom line is that while OPEC is not going to go out of business, it might well go on vacation for a while.”
RSS