If that assumption is correct then over the next few months there will be a steady decline in overall production as high cost oil and gas is shut down and low cost material emerges as the winner in what currently looks like a trillion-dollar game of chicken.

Obviously, it will not be as simple as that. The name calling and breast-beating from both sides of the great oil showdown will continue well into 2015, with multiple financial and political factors clouding the picture and delaying a sustainable price recovery.

But over time and despite claims and counter-claims about what’s happening, it will become steadily harder for high cost oil and gas producers to stay in business.

OPEC, the Arab-led oil cartel, is confident that it has the staying power and access to the lowest cost oil to see off the challenge from non-OPEC sources, particularly the new kid on the block, US shale producers.

The shale producers, in turn, reckon that OPEC will crumble because its members have huge social welfare bills to pay, or risk social dislocation at home and potential political upheaval.

Harold Hamm, the outspoken founder of leading US shale producer Continental Resources, is betting on domestic pressures in countries such as Saudi Arabia, Venezuela and Iran forcing production cutbacks to achieve higher oil prices.

Ali al-Naimi, Saudi Arabia’s oil minister, is betting on price pressure caused by the global oil glut forcing shale and other high cost producers out of the market, effectively delivering what OPEC used to deliver – a supply reduction in order to achieve higher prices.

If Slugcatcher was a betting man he would put his money on Naimi, but he would also have a side bet on a high chance of political and civil disruption in some of the world’s high-cost oil producing regions.

Venezuela is the obvious first pick for something unpleasant happening because it is already close to bankruptcy with a few more months of oil selling for less than $US100 a barrel likely to trigger a coup in the country, or the imposition of martial law.

Iran is another big oil producer already under financial pressure with the potential to collapse into anarchy, or a fresh crackdown by the ruling religious elite.

Russia is a country facing an acute financial squeeze and, while not a member of OPEC, it is a major supplier of oil and gas with a budget largely dependent on high prices – but with some of its oilfields in the high-cost category.

Hamm’s view is that that when it comes to a showdown between oil companies and oil-producing countries it is the companies, such as his, which will win because “it’s easier to adjust a company than a country”

He’s right, but he’s not recognising that most of the world’s top oil-producing countries do not behave normally because they are effectively dictatorships of one sort or another.

The great oil game, as it develops in the first half of 2015, will become less political and more economic and while no-one can predict precisely how it will evolve there are a number of events worth watching for clues, including:

• The pace of production cutbacks in US oil and gas production, a process which has started but is also being matched by tightening cost controls which could keep output running at a higher level for longer than some people expect;
• Rising levels of consumption as low prices trigger increased demand for more competitively-priced oil and gas (pity the renewable energy industry);
• Dislocation in OPEC as members under the greatest pressure either cheat and boost output to meet their budget requirements or suffer internal revolts which could cut output, such as what’s been happening in Libya; and
• Increased oil exports from the US, heaping pressure on the price.

Knowing what effect this mix of competing forces will have on the price of oil is impossible to calculate, just as it is impossible to know what political upheaval might occur in countries with broken budgets.

It is, however, easy to predict that over time the most powerful force at work in the oil industry will be economic rather than political and that the Saudi oil minister is correct with his prediction that high cost oil will be displaced (over time) by low cost oil.

The problem is that some of the highest cost producers are members of OPEC which means that while Saudi Arabia is happy to play chicken with US shale producers there are members of the OPEC club praying that the game does not end violently – which it easily could.