for Oil Prices
Two things to question no matter what the outcome: The assumption that a production agreement will benefit the market, and the promise that OPEC can moderate a price spike in the next year.
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In today's global oil market, price movements, in either direction, are largely dependent on OPEC's actions and verbal intervention. Current political and market dynamics make it clear that shale was never a panacea.
Oil prices are currently underpinned by unplanned supply outages, OPEC manipulation, geopolitical uncertainty, limited spare capacity, rising demand, and speculative buying.
Shale executives have repeatedly proclaimed their commitment to capital discipline, promising not to return to profligate spending in pursuit of growth at all costs. But output is growing sharply, poised to reach 12 Mbd in 2019.
Global oil markets are contending with a number of uncertainties as U.S. gasoline prices are already 44 cents per gallon higher than year-ago levels.
By manipulating sentiment through both verbal intervention and physical supply cuts, OPEC members have effectively used speculative money in the futures markets to their advantage.
President Trump’s tweet Friday morning shifted the debate about rising gasoline prices, the effects on American consumers, and OPEC’s role in the global oil markets.
The current environment is ideal for the oil majors: Lower production costs, consolidation, and cautious spending allow them to post massive returns.
The oil majors are expected to post $80 billion in organic free cash flow in 2018, but spending is expected to be modest.