Question

Is it possible for OPEC to lower prices to $10 a barrel and drive all non-OPEC competitors, including the fracking industry out of business? Why or Why not! Use Economic Theory to answer this question

Answer 1

No, it is not possible for the OPEC countries to lower price to $10 a barrel and drive all non-OPEC competitors including the fracking industry out of business. The reasons are:

• Producing oil takes a certain amount of fixed cost and variable cost the OPEC countries can't come down to the level where they are losing their variable cost too. At the point where they have touched their shutdown point, they will stop production or at least can't continue producing at that level for a long time. If they did it will erode their resource base.  
• Many OPEC companies function on the revenue earned by the oil. If the prices are low their economies will stop functioning and they will face bankruptcy. The recent example of this is Venezuela which is close to bankruptcy because of low oil prices.
• Sooner or later the OPEC nations will start feeling the pinch of the low oil prices and they have to increase the price of the oil or it will start affecting other big OPEC members like Saudi Arabia and Others.