There has been much news lately about the inability of OPEC to get its act together to support worldwide oil prices, prices that fell dramatically starting in late 2014. There were a variety of reasons for the decline, but mostly it boiled down to simple considerations of supply, demand, and competitive markets.
The US had been rapidly increasing its oil production, more rapidly than worldwide demand was increasing. The US “shale revolution” increased production from a low of around 5 million barrels of oil per day to nearly 10 million per day, essentially matching the 1970 high. This increase occurred in only around three years. In oilfield development terms, this was an astonishing achievement.
Supply in excess of demand invariably leads to lower prices. But in the short term, there is another interesting observation about how producers react to lower prices.