Shieks V Shale -- The Economist -- December 10, 2014

This week's issue of The Economist's cover story, with leading editorial and several articles, is "Shieks V Shale."

The leading editorial was very balanced. The takeaway: fracking/shale is not going away but that doesn't mean it won't be painful for those who have invested in fracking/shale.

The only article on this subject in this issue that I read was in a small box, "What is the oil cartel up to?" on page 82. It begins:

An effective cartel requires three things: discipline, a dominant market position and barriers to entry OPEC lacks all three. Its members cheat on their quotas. It supplies only 30% of the world's oil -- too little to exercise control. New producers abound.

It then goes through all the arguments, discussions, and observations we've seen here and elsewhere.
The article concludes:

If low prices stem investment in other sources of oil, such as Canada's tar sand or America's shale, that means more demand for low-cost Saudi oil in the future.

Comments:

• Because of the lack of discipline within the cartel, I have argued that the Saudis did what they did to protect its market share "within" OPEC, not to take on the US shale industry as the primary objective. It looks like I'm wrong. Or am I? If I had had a bet on that, with this issue of The Economist, I would "man up,' admit I was wrong, and pay up. But even as I pay up the bet, I'm thinking, "there's got to be more to it than that." Saudi threw Venezuela, and perhaps other OPEC members, under the bus.
• The article mentions that Saudi can "afford" the slump in oil prices. According to the article, Saudi Arabia has a war chest (savings) of $900 billion. Fitzsimmons says this is costing Saudi Arabia $138 million per day. Even if that is remotely correct, it works out to about $50 billion/year. So, yes, Saudi has the war chest.