The Oily Rag - finnCap Energy quarterly sector note
The ‘Goldilocks band’. Co-ordinated OPEC / non-OPEC action has brought the oil market back into balance. Going forward, heavily reduced investment in frontier exploration and conventional development projects, limited spare OPEC capacity and rising geopolitical supply disruptions point towards a tightening oil market, especially early next decade when holes in the conventional non-OPEC project queue are felt more acutely. Essentially, the world is now overly reliant on US shale and Saudi to deliver higher production. However, there are limits to US shale growth and it cannot be relied upon exclusively. Power within OPEC has shifted back to Saudi, the only member with significant spare capacity. This gives it the freedom to act unilaterally to compensate for any production outages or manage price weakness. Assuming emerging trade wars do not escalate dramatically, we see crude trading in a $70-80/bbl ‘Goldilocks band’; not too hot that it stifles demand and overstimulates US shale, not too cold that the sector suffers underinvestment and OPEC economies get crushed.
Contact - Jonathan Wright | firstname.lastname@example.org