This week brought new signs that the Saudis might at last be winning. Some quick background: Saudi Arabia has long played the role of the “swing producer” in the oil market, meaning that they tried to stabilize prices by pumping more oil when prices went up and pumping less when prices went down. But that was before the fracking revolution led to a surge in U.S. oil production, eating into Saudi Arabia’s share of the oil market and (along with other factors) driving down prices. In late 2014, the Saudis decided they weren’t going to cut back their production to accommodate new U.S. crude. Instead, they turned on the taps full-blast, betting that by flooding the market they could chase U.S. oil companies out of business. (This is a simplified version of this history. For a fuller version, see Steve LeVine’s excellent piece on Quartz.)
At first, it looked like the strategy was failing. The flood of crude successfully drove down prices, and U.S. producers cut back on drilling in response. But the wells they did drill were so successful that total production barely budged. And when prices rebounded even a bit, as they did briefly last spring, U.S. producers went right back to drilling, pushing prices back down.
Continues here: http://fivethirtyeight.com/features/saudi-arabia-is-winning-its-war-against-the-u-s-oil-industry/