Publications: Notes at the Margin

Price Spreads and Price Dynamics: An OPEC Production Freeze Could Work (September 5, 2016)

 

The title this week may surprise many readers. OPEC, after all, has been the subject of much derision, especially here. However, we now suggest that a believable production freeze could raise prices and extend the global crude oil inventory liquidation for years. Such an outcome is possible if paper traders respond to a freeze announcement by aggressively buying futures. As explained in this issue, such buying would facilitate further inventory accumulation, removing oil from the current market and raising cash prices. In other words, futures markets and derivatives might just come to the producers’ rescue.

 

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