The November market report from OPEC throws some light on the thought processes behind its recent decision making about production

The November market report from OPEC throws some light on the thought processes behind its recent decision making about production. The commentary, obviously written before the most recent oil price falls, observed that prices above $80 per barrel will allow a lot of US tight crude activity to continue, but a further drop could have a remarkable impact on the world market. By holding its own production steady, OPEC is taking a calculated risk in putting this hypothesis to the test. It could be right. The accumulating evidence does point to US production rates rising and falling rapidly. Given the nature of the resources being tapped, more high productivity new wells will be needed to simply hold production steady in the medium term because of rapidly declining output from the larger number of legacy wells. OPEC seems to be counting on lower prices taking their toll on the number of new wells and the production trajectory reversing just as quickly as it started to rise.