November 30, 2014 11:41 AM UTC

Oh Frack! OPEC Calls Shale Bluff, Sends Oil Prices Into Free Fall

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• by: ClubTwitty

(Promoted by Colorado Pols)

It seems that faced with declining profits of their own, as the frenzy to drill in American shale plays sent stockpiles skyrocketing and prices crashing, that the Organization of Petroleum Exporting Countries (OPEC) decided to call the shale drillers’ bluff.  Reuters is reporting:

Saudi Arabia's oil minister told fellow OPEC members they must combat the U.S. shale oil boom, arguing against cutting crude output in order to depress prices and undermine the profitability of North American producers.

For at least a couple of years a few observers have pointed to how over-leveraged most shale-heavy oil and gas drillers are, that shale oil–no matter how abundant hydraulic fracturing makes it appear–is an expensive prospect that cannot sustain itself.  Over-leveraged with a need to drill more and more and more at an ever higher ‘break-even’ cost, some astute observers have noted that shale bears all the hallmarks of a classic ‘bubble.’

“In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” said Fedun, who’s made a fortune of more than $4 billion in the oil business, according to data compiled by Bloomberg. “The shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish.” 

As with bubbles in the recent past, shale contrarians have been met in the manner of all naysayers during halcyon days of hype and hucksters.  But many have nonetheless steadily insisted that shale is not the panacea and ‘revolution’ its barkers want those seemingly born daily to believe.  And now, it appears likely, that the other shoe is about to drop: the shale bubble is about to POP! 

Investors have wiped more than $50 billion off the value of Europe’s biggest oil companies after OPEC members rejected calls to cut their oil output. 

Go ahead, seems the message sent by OPEC, make our day: See how long you can “Drill, Baby, Drill” with a mountain of high-interest debt and oil prices collapsing. And as with bubbles in the past—like booms in the western energy fields—any observer of history should already know how it ends. 

The only question: will this be the time we learn better?