Drum on Oil Prices

Kevin Drum analyses the recent drop in oil prices in Mother Jones.

Keep in mind that US shale oil production has been growing steadily for the past five years, and during most of that time oil prices have been going up. It's only in the past six months that oil prices have collapsed. Obviously there's more going on than just shale.

James Hamilton, who knows as much about the energy market as anyone, figures that about 40 percent of the recent oil crash is due to reduced demand—probably as a result of global economic weakness. Of the remainder, a good guess is that half is due to shale oil and half is due to the OPEC price war in Bloomberg's chart.

In other words, although US shale oil production is likely to have a moderate long-term impact, it's probably responsible for a little less than a third of the current slump in oil prices. The rest is up to OPEC and a weak economy. So give shale its due, but don't overhype it. It's still responsible for only about 5 percent of global production.