We're not sure we'd take this bet about fracking and oil

We should make it clear that we have absolutely no expertise in, nor even knowledge of, the various costs associated with the different methods of extracting conventional and fracked oil. However, we do know some bits about the wider world in general and that makes us think that we probably wouldn't take the bet that Saudi Arabia is:

The slide came after Opec said persistently low prices would finally begin to bite for rival producers in 2016, forcing the US and Canada to cut back on production this year.

n its latest monthly review of the oil market, the group said non-Opec supply would shrink by 660,000 barrels a day this year, above previous estimates of just 270,000. The forecast seemingly vindicates the cartel's landmark decision to ramp up production in order steal a march on higher cost producers such as US shale. But shale drillers, as well as producers in Canada and Russia have proven resilient in the face of the 18-month price crash - which is now the worst in the post-war era. Non-Opec production grew by more than expected in 2015 to 1.23m barrels a day, said the report, which predicted that 2016 was finally the year markets began to rebalance.

Our point being that the cost structure for conventional oil is that normal one for resource extraction. Go find some lake of the stuff and stick a pipe in it. There's only so many lakes and that's the difficult part, finding one. Shale or tight oil has a completely different structure. Where it is is well known. That there's vast amounts of it is well known. The difficulty is in bringing extraction costs down to a number that makes sense. It's also a short term proposition: a shale well produces for a couple of years at most. It's also a low capital spend business, a few million dollars will bring a well online. As opposed to the decades and multi-billions for conventional oil.

Tight oil is thus better regarded as being a manufacturing process rather than a resource discovery and extraction one. Indeed, it has been called "manufrackturing" in a report or two.

And this very much changes things: because one thing we know about this combination of capitalism and markets is that it drives manufacturing costs down relentlessly. It might be possible that a sustained drop in the oil price today will drive many of those American firms out of the market. But in the medium term we would probably bet that those fracking extraction costs are only ever going to go down as the process becomes more efficient.

Thus we'd probably not take the bet of driving them out of business: if their cost base keeps going down then attempting to bankrupt them becomes ever more expensive in terms of the low conventional oil price required to do so. It's that switch from the economic model of conventional resource extraction to something much more akin to the brutally competitive and cost reducing world of manufacturing that does it.