GEAB 115

Oil – It’s working

In spite of many interests that obviously want to minimise the impact of the agreement on oil production between OPEC and its allies, and doubts related to the sustainability of the deal, it seems that Russians and Saudis are planning to extend the Vienna Agreement[1] until – at least – the end of this year. The tug-of-war between the North American shale industry and the oil-producing nations is, according to us, less of an arm wrestling contest, than a trap. Shale producers are also negatively impacted by decreasing prices generated by their overproduction. In fact, they probably suffer more, not having the shock absorbers that the great nations usually have. The problem is that they are private actors, very difficult to coordinate with each other and to adapt to supranational logics. But our team believes that it is in the interest of these private producers to find a way for their chaotic levels of production to stop pitching prices. As for OPEC-NOPEC, in order to dilute the impact of non-agreement countries’ production (US, Brazil, Canada), one technique is to expand their group, which they actually plan to do this month by welcoming Egypt, and especially Turkmenistan. Excluding any major geopolitical shocks, we continue to anticipate prices around $50 a barrel with small recurring episodes of adrenaline causing relatively rapid counter-reactions to the oil price increase.