Friday, March 27, 2015
How American Frackers Plan to Beat OPEC
The American oil industry is under pressure as oil prices continue to fall. There has already been a dramatic drop in the price of a barrel. What once cost $105 last year is rounding out around $50 now. With that has also come job loss and the downsizing of corporations. However new problems are arising for the American oil industry. Saudi Arabi, the lead member of the OPEC cartel is taking a difference stance on this soft spell. Instead of decreasing production to boost fuel costs they have decided to increase production. This is thought to be an attempt to undercut American prices and dominate the market. Saudi Arabian oil drilling process is considerably less expensive then the US and they are able to produce barrels for around 10 dollars. This being said American oil industry CEOs remain unconcerned about this issue. One CEO states "we made plenty of money when barrels cost $100, we will make plenty of money when they cost $50.)
http://finance.yahoo.com/news/how-american-frackers-plan-to-beat-opec-143601751.html
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5 comments:
The dropping price of oil has definitely hurt the economy. But with Saudi Arabia trying to undercut oil producers in the U.S. by pricing them out of the market could be detrimental to U.S. oil jobs which have already experienced a decrease in employment. Last year the states experienced an influx of millionaires and added multiple jobs back to the economy. I believe CEO's aren't concerned because they now that the drop in oil prices in temporary and once oil prices pick up everything will stabilize.
The most interesting part of the article for me was the quote from the American Oil industry CEOs. I think it demonstrates the unbelievable amount of wealth that is within the oil industry. I think the waiting game between the American Frackers and OPEC will continue to be played for a considerable amount of time.
Oil is a fascinating industry. While firms are entitled to profit, the astronomical profit firms like Exxon have made over the past few years (in the ballpark of $35-40 billion) is unnecessary. They will be able to withstand these external pressures in the short-run due to their massive assets and cash. Also, with the extra supply, this is just an example of econ 110 pricing.
I agree with Austin, in that I do not feel as though Exxon and other companies need to make as much money as they are making. Personally, I feel that oil companies do not really care about the current drop in oil prices because they have so much extra profit and this is just a typical price change that will most likely increase again in the future.
I think considering the amount of profit the oil industry make, the drop in price only cut down on their profit margin but not too much to the point that would show loss. And OPEC would not be able to sit still with this low price for too long i dont think
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