Thursday, June 30, 2016

OPEC is a cartel and why Oil could fall to $10

Cartels exist to keep prices above equilibrium-that's the only reason for that-and that encourages cheating; somebody in or out of the cartel wants more than their share and so the leader of the cartel's job is to cut its own production to accommodate the cheaters. 

Well, the Saudis-the leader of the OPEC cartel-decided that they were not going to go along with that. They thought they could outlast others and when you're in a price war, the cost of meeting budgets isn't the number that counts. It's the point where free cash flow disappears and that in the Permian Basin in Texas is $10 to $20 a barrel and it's even less in the Persian Gulf.