After a hefty rise of 46.9% for the month through close last Friday, WTI (the U.S. crude oil benchmark) has fallen for two consecutive sessions.

As always, pundits with no real experience in the industry will blame the “glut” – as if this really explains anything.

Remember, in the summer of 2014, we had a greater surplus of crude at Cushing, OK (where WTI is set) than we do now.

And WTI was trading above $100 a barrel.

Clearly, excess supply on its own is not responsible for today’s oil conundrum.

Instead, the key factor in how people regard the market and anticipate prices today is guaranteed excess supply.

And the actions of a single country will now decide whether that guarantee will remain…

U.S. Shale Oil Guarantees Excess Supply

Here’s what’s throwing the traditional supply and demand balance out of whack. The market now knows there are significant volumes of extractable unconventional (shale and tight) oil in America that could be brought to market in short order.

Whether that volume will be brought up is, of course, largely a function of demand and price. The former is rising globally but hardly at either the level or the rate of known reserves. Price, therefore, becomes the key factor.

At $60 a barrel, most U.S. unconventional oil can be produced at a marginal average profit. But that’s not the case at $40 a barrel, or even $50 a barrel.

Keeping oil prices low enough that this American oil stays in the ground remains one of the bulwarks of OPEC’s policy of defending market share.

But this has come at a hefty cost. All OPEC producers are running significant and expanding budget deficits. Those budget deficits are intensified by declining export revenues and made even worse by the need to import just about everything else.

After all, these are not diversified economies: everything you might want (other than petrochemicals) must be imported for hard currency.