Yes, OPEC gave you low gasoline prices. And they can take them away just as easily.

You might read in the news that OPEC (Organization of Petroleum Exporting Countries) has lost its power to maintain prices because of the shale revolution in US oil production. Nothing is further from the truth. The fact is that OPEC can make the swings even more violent, which is extremely upsetting for stability loving people everywhere. It is true that OPEC has temporarily given us low gas prices, but that could go away in a big hurry.

The idea that OPEC is powerless comes from the rise in US oil production, and OPEC’s attempt to quash its growth by flooding the market with oil.  The plan backfired, howl the commentators (except this one), OPEC lost. US oil production hasn’t fallen at all and it’s been a year since OPEC unveiled its strategy. In the eyes of some, all that’s happened is that US producers have gotten much more efficient and can produce enough for all.

It is true that US oil production has not fallen much, but it’s like stopping an aircraft carrier: you can’t just turn off the engines and decide you’ve discovered perpetual motion because it keeps moving. Of course subtleties are of little value on financial news networks where commentators bray like over-dramatize like third-rate actors gunning for an Oscar.

OPEC’s plan is to eventually grind down US oil production, and it is working, but has been masked by huge inventories of drilled wells slowly being brought on production. Current drilling statistics show relatively few rigs in action, which is taken to mean production can be held up with a third the number of rigs that increased the production in the first place. Not even close.

The Saudi-led policy is drying up capital for energy investments around the globe, not just the US. At the same time the world is going green and putting solar panels on everything this side of turtles, so a lot of people out there just assume that oil is fading in relevance and OPEC is yesterday’s news.

Well, the world still needs 90 million barrels per day, and climbing. US production peaked at about 10 million barrels per day earlier this year, and has fallen off. Meanwhile the hundreds of billions needed to maintain that level of production are disappearing rapidly, with petro-countries using their capital to feed their citizens.

OPECs strategy is working perfectly. They might act like lunatics, but they do understand the value of having a plan further out than 6 months.