This article was first published by Seeking Alpha on December 8, 2014.
Summary: OPEC's
decision has exacerbated the tough oil market. However, it looks like the oil
cartel has a plan. The ball is now in the American oil producers' court. There
are several ways investors can benefit from this downmarket.
On November
27, Saudi Arabia and its 11 partners in the Organization of the Petroleum
Exporting Countries (OPEC) failed to agree on production cuts, causing a steep
drop in oil prices to their lowest levels in five years.
As SA
contributor Michael Fitzsimmons correctly pointed out, the reason for
maintaining the 30 million barrels a day of oil output is that Saudi Arabia
wants to defend its market share and learn the threshold of pain of U.S. shale
producers. In his article, which I suggest everyone must read, Fitzsimmons
explains how Saudi Arabia could sacrifice roughly $138 million of oil revenues
a day to learn the breaking point of U.S. shale producers. That said, the
Saudis "might be surprised at how long it takes" to find this out.
I, however,
believe that there won't be any surprises here for Saudi Arabia. The Kingdom
understands the realities of the market, and knows exactly what must be done.
Accepting the new kid
By
maintaining its existing levels of production, Saudi Arabia, as well as OPEC
nations, have also acknowledged the reality of the market, the emergence of the
U.S. as the world's biggest oil producer.
According to
EIA's estimates, U.S. production has climbed significantly over the last six
years amid a shale-powered boom … read full article at Seeking Alpha.
