OPEC may not matter any more

Some of my friends first got their drivers licenses in 1979, although I didn't get mine until later on. If you're old enough to remember 1979, you might remember seeing this:

Get it while you could

OPEC per se didn't cause this line -- it was mostly unrest in Iran -- but it did cause gas lines in 1973:

Good luck with that

These days, the chances you'll see a gas line are just about nil. And if the events chronicled in the Wall Street Journal are any indication, you aren't likely to see one again any time soon:

OPEC is worried that its plan to drain a global oil glut—and thereby raise crude prices—isn’t working.

A long-planned meeting in St. Petersburg, Russia, on Monday to discuss the oil market with big producers outside the cartel has turned into a critical gathering. Over the weekend, the Organization of the Petroleum Exporting Countries said, its ministers have held a series of “intensive consultations” about the challenges for an output-cutting deal the 14-nation cartel struck last year with Russia and other big producers.

The agreement was supposed to take almost 1.8 million barrels of crude oil off the global market and drain an oversupply that has weighed prices down for three years and sent a shock through the economies of oil-producing economies. But prices have remained stubbornly low as the glut persists. Brent, the international benchmark, fell 2.5%, to $48.06 on Friday because of doubts about OPEC’s ability to turn around the market.

If you want to know why, ask the frackers:

Another reason to expect little action on Monday is that OPEC is still weighing how to deal with U.S. producers, which remain largely outside of the cartel’s control.

Shale drillers—which work on shorter-term projects than traditional oil producers—took advantage quickly when oil prices briefly rose last year after the OPEC deal, sending more crude into global supply. They also have learned to drill at lower prices, and U.S. production has maintained its upward swing even as prices have been depressed this year.

As recently as last year, we were told fracking couldn't be profitable if oil was less than $65 a gallon. Oil production in the U.S. continues to grow, even at $48.06. Much of that production is fracking, as the domestic oil industry demonstrates its ability to adapt.

The implications are enormous. The geopolitical implications of the Middle East have been a huge part of life for all of us for nearly half a century. And $48/gallon oil cramps Vladimir Putin's style. Not ten years ago we were told we were reaching Peak Oil. I haven't heard much of that theory lately.

OPEC soldiers on, confident its machinations will make a difference later in the year. OPEC honcho Mohammad Barkindo says so:

Mr. Barkindo said Monday’s meeting could result in recommendations for OPEC and its allies to consider in the future. He said overall compliance with the deal since January had been “excellent.”

“The rebalancing process may be going at a slower pace than we earlier projected but it’s on course. It’s bound to accelerate in the second half,” he said.

Or the frackers will gobble up the market share. Place your bets.

Aw, that's a shame

OPEC has issues, and Walter Russell Mead and friends have noticed:

The oil cartel roped eleven other petrostates into an agreement to curtail production in 2017 and are currently working on extending that deal, but the output cut’s ultimate goal of eating away at the oil market’s glut of crude is being undermined by the actions of suppliers outside of OPEC—U.S. shale producers chief among them. Now, OPEC is revising upwards its estimates of how quickly supplies will grow outside of its membership this year by a whopping 64 percent. 

Why is this happening? Primarily because of the frackers:

By cutting costs and boosting efficiencies, U.S. shale has made itself capable of profitably producing $50 per barrel oil.

The only way cutting production makes sense for OPEC is if they can subsequently get $75 per barrel, or thereabouts, to make up for the lost amount of production. And meanwhile frackers are gearing up elsewhere:

Vaca Muerta, which is Spanish for Dead Cow, is a shale gas and oil formation the size of Belgium in the heart of the region of Patagonia and is essential to Argentina being able to become self sufficient in energy.

President Mauricio Macri hopes a pact he has negotiated with unions and provincial authorities will jumpstart investor interest in developing the field.

Argentina won't be in the game for a while yet, because labor and transportation costs are still obstacles to profitability, but it will be in the game eventually. The price of a barrel of oil was $115 as recently as 2014. It's been less than half that price for a long time now:

Frack you

OPEC cut production last year and while prices rose for a time, they have been essentially stable for over a year. I have paid as much as $4/gallon for gas around this time of year in the past; I have not paid more than $2.50 in a long time, except in places like Chicago where they tax the crap out of gasoline (and everything else). While we worry about bread and circuses in Washington, we don't have to cringe every time we approach a gas pump. I'm grateful for that.