NEW YORK (TheStreet) -- OPEC's failure to agree on production cuts at Thursday's meeting in Vienna left the oil cartel in disarray. Brent crude prices plunged $6 on the news to around $71 a barrel, while West Texas Intermediate oil declined to around $69.
The surge in new oil supplies has essentially broken the power of the Organization of Petroleum Exporting Countries, which has ruled the oil market since 1973. We're in a new world of freer markets and lower oil prices, but we shouldn't assume that truly cheap oil -- the $1 a barrel of 1971 or $10 a barrel of 1998 -- will ever return.
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From the nadir of 1998 until 2011, oil prices had been on a steady upward trend. Demand had been increasing, especially from the newly wealthier economies such as China and India, while supply had been fairly sticky, with only modest new fields adding to the fairly constant flow from OPEC. Indeed several OPEC members, such as Venezuela, Mexico and Nigeria, were seeing oil output decline. By 2011, after the worst of the recession had lifted, oil prices had risen to above $100 a barrel, and there was much speculation about $200 oil, and what effect that would have on the U.S. and other Western economies.
It didn't happen. Output from the Canadian (and potentially Venezuelan) tar sands was profitable at $100 a barrel, and so increased. The new horizontal fracturing (fracking) techniques enable oil to be extracted from U.S. shale, in a way that before was economically impossible. The gradual ramp-up in fracking output has pushed the U.S. toward self-sufficiency, opened dreams of new oil production in Europe from places like Poland and reduced the market share of OPEC oil.