The global oil industry's new game: Chicken

The global drop in oil prices is apparently turning into an international game of chicken led by some members of the OPEC oil cartel.

Prices on benchmark crude oil flirted with six-year lows on Tuesday following comments by the United Arab Emirates' energy minister that OPEC will not reduce its current production levels. Instead, the cartel expects other, non-OPEC oil producers to cut back.

"Everyone needs to take measures, but those who are producing the most expensive oil -- the rationale and the rules of the market say that they should be the first to pull or reduce their production," Suhail Al Mazrouei told reporters at an energy forum in Abu Dhabi. "If the price is right for them to produce, then fine, let them produce. If the price is not right, then they will reduce."

Mazrouei also noted it was unlikely for oil prices to experience a sudden rise anytime soon. "The current prices are not sustainable," he said. "Not for us but for the others."

And by "others," Mazrouei was apparently referring to North American companies involved in the current shale oil boom that has turned the global energy landscape upside down.

That a key OPEC member supports continued production levels -- no matter what happens to prices -- isn't the only confusing thing about oil today. In recent weeks, analysts have been sending out ambivalent and often conflicting signals about whether the dramatic drop in oil prices is good or bad for America's economy.

Motorists have obviously benefited from lower prices at the gas pump. And a good deal of the money they're not spending on gas is going back into the economy, which, in turn, is helping many companies, especially those whose bottom line depends on energy costs. And when businesses get stronger, they look to expand, which means many are now back in a hiring mode.

But tumbling oil prices have also meant a wide-scale round of cutbacks for many U.S. and Canadian oil producers, which have manifested themselves in freezes on capital investment and pink slips for workers at companies directly and indirectly involved in oil production.

"With oil prices plunging, there are fears that negative effects on the domestic energy producing sector might outweigh the economic benefits of lower oil prices," a group of economists at UBS noted last week.

But how widespread would those negative effects be? The UBS analysts acknowledge that while the oil and gas extraction sector added nearly $300 billion to the nation's GDP last year, that amount is still less than 2 percent of overall U.S. output and that jobs in the oil and natural gas industry amount to a tiny fraction of total, nonfarm payrolls.

So, the refusal by OPEC's main producers in the Arab Gulf states to back down and reduce their current output appears to signal a race to the bottom. Which group of major oil producers -- whether in the Middle East, North America, Russia or elsewhere -- will say "ouch" first and cut back on output, as lower oil prices make it harder and harder to recoup production costs?

OPEC sent oil prices into a near free-fall in November, when the organization decided to stay with current output levels. And according to the UAE's Mazrouei, "we are telling the market and other producers that they need to be rational and like OPEC, they need to look at growth in the international market for oil and need to cater that additional production to that growth".

But some other OPEC nations, whose economies are more fragile than those of their Gulf colleagues, have been expressing their displeasure.

Over the weekend, Venezuelan President Nicolas Maduro met in Riyadh, Saudi Arabia, with Saudi Crown Prince Salman to talk about oil prices.

Maduro also visited with top officials in Iran, another OPEC member whose economy is suffering from Western sanctions as well as collapse of oil prices.

"Those that have planned to decrease the prices against other countries, will regret this decision," Iranian President Hassan Rouhani said in a speech broadcast on Tuesday.

"If Iran suffers from the drop in oil prices, know that other oil-producing countries such as Saudi Arabia and Kuwait will suffer more than Iran."