In our last Quarterly Investors Letter, we mentioned a possible cut in production from OPEC as their defense against sliding oil prices.  Surprisingly (or maybe not so given the diminishing power OPEC has been showing), OPEC does not seem likely at this point to cut production and in the meantime Saudi Arabia is taking a page from the 1980s playbook and it announced it will cut prices for its own oil.

This strategy is aimed at hurting the US based shale oil producers which have a much higher cost of extraction than the Saudis.  However, the Saudis have a “full cycle” cost of production that is not too dissimilar than North Dakota producers as to balance their country’s budget they now require $89 a barrel, up from $78 in 2012.  Additionally, shale production costs are constantly decreasing as technology improves.

This will get interesting……