An oil price collapse puts shale to the test

OPEC's decision to leave production quotas unchanged contains many risks, and is likely to challenge the responsiveness of US shale production.

Pimco

After averaging nearly $US110 per barrel during the first half of 2014 and peaking at over $US115 per barrel in June, Brent crude oil has fallen by over $US40 in just a few short months.

Surging US supplies and lagging global demand in the second quarter were the proximate cause for the first phase of the sell-off. This set in motion an apparent change in OPEC policy, initially telegraphed in early September and clearly reconfirmed last Thursday, to allow for pure price discovery rather than a cut in production to stabilize prices. This prompted the second phase, culminating in last week's plunge in oil prices.

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