When producers that are inherently prone to conflict and resource nationalism lose supply, output will most likely not return to previous levels.
OPEC’s gamble to cut production to shore up prices has not worked out the way members thought it would, but the cartel cannot be faulted for not trying. The inadequacy of its policy in the first part of 2017 means that OPEC will do whatever it takes during the second half of the year to achieve its goals.
One solution to reducing dependence on imports would be to build pipeline capacity connecting the Bakken area to refineries on the East Coast.
In the aftermath of the 2014 price fall, producer countries have had to reevaluate policy and economic strategy while contending with a persistent glut that may dampen prices for some time, further undermine their budgets, and possibly cause domestic strife.
As the group doubles down on its production cut, questions linger about exit strategy, capability, and size.
In combination with robust U.S. shale oil production, the wild cards of Libya, Nigeria, and Iraq could force OPEC and its allies to go back to the drawing board.
OPEC’s strategy centers around restricting supply to the Atlantic basin since inventory data in the U.S. is the most timely and visible in the world. From February to early April, U.S. imports from Saudi Arabia have plummeted by about 462,000 b/d.
The myriad issues that Angola is struggling with right now, including declining production and weak prices, reflect the challenges ahead for Isabel dos Santos and the country’s oil industry.
Sharp growth in the downstream sector could simply shift the gigantic surplus of crude to the refined products market, undermining profit margins in all regions.
Nothing will change materially in the oil market until there’s a significant stock draw, a development that appears doubtful, which could ultimately force OPEC to change strategy once again.