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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.
If oil demand were to peak, the industry would likely see a good bit of consolidation, but the situation would not bring about a collapse.
Despite shale’s resurgence, there are questions about how healthy the U.S. E&P sector is in light of higher price levels since November of last year.
Although the world is still in the midst of a seemingly perpetual glut, does a supply gap loom? Is peak oil demand imminent? Why is OPEC praising shale and meeting with hedge funds?
Between now and OPEC's next meeting in May, much more must be done in order to make sure the cuts are fairly distributed, slackers come around, and non-OPEC members stick to the deal.
If there is an extension of the OPEC cut in May, then a re-start date for the Neutral Zone would likely be pushed to Q4 2017 or into 2018 as a result of a lack of short-term benefits for Kuwait and Saudi Arabia.
Speaking at a major conference in Houston, the Saudi Energy Minister said there is cause for “cautious optimism” for the industry but warned against “irrational exuberance.”
Plans to open up the Kingdom to outside investors will continue to cause fissures within the country, and may also bring about tensions within the OPEC cartel.
The growing confidence among hedge funds for higher prices and the expectation of a tighter market during the second half of the year make it more likely than not OPEC will continue to manipulate output.