In 2014, Saudi Arabia and the rest of the cartel’s oil ministers lined up their weapons and fired a huge salvo.

Maybe they couldn’t destroy the global market’s new “swing producer,” the United States, and its legion of nimble technology-laden shale-oil producers.

But they could certainly knock U.S.  producers out of their roughneck boots for a while. Despite what you may have heard, the damage from that battle still lies all over the Dakotas, Texas and the rest of America’s shale-oil regions.

And as the Organization of the Petroleum Exporting Countries (OPEC) gets ready to meet at the end of the month, it can only mean one thing…

Get ready for yet higher oil prices.

Don’t believe me? It’s OK — I was at a neighbor’s party a while back, and over barbequed chicken and beer, I mentioned the idea of $50-plus oil. My acquaintance’s reply? “Well, the shale boys can just switch on their pumps again.”

It’s a nice thought, but ummm — no.

OPEC, having discussed proposed cuts in production in recent weeks, certainly knows the score in America’s shale fields…

America’s Troubled Oil Patch

The Wall Street Journal summed up the problem earlier this year: “Many independent companies are too financially strapped, have let go too many workers, or have idled too much equipment to immediately ramp up again.”

Data from the U.S. Energy Information Administration notes the same kind of trend. Just look at the number of onshore rigs in operation.

At the end of 2014, we had more than 1,500 rigs pumping away. By summer of 2015, the count dropped by more than 60% to 634 rigs. By the end of last year, the count again fell to just over 500. And as of June this year, the count was down nearly 40% to 330 rigs in operation, with a similar decline in U.S.-based crude-oil production.

Now, if you look at the last data point or two on the chart (mid-August), you can see U.S. production tipping upward ever so slightly. Maybe … just maybe … it’s a trend?

It’s possible. There’s a multimonth lag between oil prices and a corresponding drop (or increase) in prices, which bottomed out at $26 per barrel in February.

So a boost in production would be expected. And with the election of Donald Trump, that’s certainly a signal to the oil sector that they have a friend in the White House.

The Challenge for Shale Oil

But America’s oil companies are still cutting jobs. They laid off 103,000 people in the first 10 months of this year versus 90,000 during the same period in 2015.

And a recent survey by Evercore ISI makes clear another challenge: getting those laid-off workers back on the job. Evercore found that nearly 80% of those surveyed are looking for work elsewhere: “An overwhelming majority,” said the firm’s analyst, “have turned their backs on the [oil] patch altogether.”

“Labor constraints,” he said, “will be an ongoing bottleneck that will slow and prolong the North American activity recovery.”

That doesn’t mean those people can’t be brought back on board the drilling pads. But it’s going to take money and time. Time for training and time to put tons of mothballed gear — pumps, rigs, trucks, pipes, the whole schmear — back into working order.

The more time it takes, the higher oil prices have a chance to go.

All of which points to a situation that I, The Sovereign Society’s Jeff Opdyke and others have warned about — oil prices aren’t going to get significantly cheaper. And if OPEC agrees to a round of substantial production cuts, oil could get a lot more expensive a lot more quickly than many people realize.

Kind regards,
OPEC Just Won the Oil War
JL Yastine
Editorial Director