More and more market watchers are making the case that OPEC should just leave well enough alone and let the free market set the price. While trying to influence sentiment and fundamentals, on nearly a daily basis, OPEC has already destabilized the market and guarantees more uncertainty ahead.
The outlook for Argentina’s Vaca Muerta is arguably more positive than it has ever been, with some oil majors recently giving the go-ahead on big shale investments in the country.
The combination of higher interest rates and rising drilling costs could stifle the rebound in shale production. While the oil majors will likely take higher interest rates in stride, more expensive credit would threaten the financial health of small E&Ps.
Oil majors may not be entirely out of the woods yet, but first-quarter performances suggest that they are on the upswing after nearly three years of mostly red ink.
Despite constant chatter of rebalancing, oil prices have been weakening, and OPEC has itself to blame for causing market uncertainty and instability.
With so much focus on OPEC cuts and shale growth as of late, declines at existing fields and demand increases from low prices mean that a supply gap will eventually form, even if the rosiest scenario pans out in the Permian.
Small independent shale producers are dealing with a the possibility of another oil price plunge with aggressive hedging, a development that should allow output to grow.
Even though a large amount of shale production is hedged for this year, the industry is still vulnerable to cost inflation, access to capital markets and investment banks, and fluctuations in the oil price.
A large stock build in the first quarter, rampant producer hedging, and large amount of investor inflows in the futures market created an “unbalancing of the market,” the opposite of OPEC’s stated goal, according to one prominent oil market analyst.
The market’s initial reaction on Monday and its losses of about $7 since the beginning of March indicate that OPEC members can’t use verbal intervention to lift prices as easily as they did last year.