As an invited member of Investor Business Daily’s “Brain Trust” – a select group of opinion writers including Steve Moore and Art Laffer – I have a front page article in Wednesday’s titled “Saudis’ Drive To Kill U.S. Shale Has Backfired.” Here’s an excerpt:
For months Saudi Arabia was cagey about its oil strategy. The kingdom claimed its decision not to cut production and stop the slide in prices was solely about letting the oil market reset itself. That charade is over. The Saudis now openly boast that their strategy to let oil prices collapse was an attempt to kill U.S. shale production. Citing the nearly 60% drop in the U.S. oil rig count since October and the slowing of U.S. oil production (see chart above), they are claiming a brilliant triumph.
But rather than kill the U.S. shale revolution, the Saudis have only made it more resilient, sped up its rate of technological innovation and capped oil prices for at least a half-decade or more. U.S. shale producers will survive and grow. American consumers, paying less for gasoline and heating oil, will be the big winners. The Saudis and their friends in OPEC, so dependent on oil-export revenue, will be the clear losers.
The U.S. shale industry is by necessity becoming more efficient than ever. Low oil prices have become an opportunity. The Saudis have lit a fire under producers to trim the fat, deploy new productivity-boosting technologies and zero in on the most productive geology. Shale efficiency and innovation have created a new ceiling for the price of oil. This certainly was not the Saudis’ aim.
It’s been tempting to think the shale boom is over, that a fall in the rig count and a small dip in U.S. crude production signify that the high-water mark of U.S. shale oil has come and gone (see chart above0. But, as the Saudis are finding out, we are just in the early innings of a new revolution — “Shale 2.0″ as Manhattan Institute fellow Mark Mills calls it. A strong, increasingly efficient and productive U.S. shale industry — powered by American ingenuity and “Made in the USA” drilling and extraction technologies — is here to stay.
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