Publications: Notes at the Margin

"Narrowing Options for Producers: A Trader/Investor Trap? (August 28, 2017)


In their analysis of OPEC's alternatives, Citibank analysts have reached the wrong conclusion, one that could have catastrophic implications for companies in the energy business that are swayed by their assertions. In summary, the error is to look at the data and the market and conclude that the oil market today has become a competitive market and will remain a competitive market from now on, that is, a market that lacks a dominant firm—or, as the Citi report puts it, a "market regulator." This indeed may happen but only time will tell. Historians may also look back and find instead that 2017 was a "saddle point," to borrow a mathematical term, that was followed by the reemergence of a different group of dominant producers. These producers, recognizing global use would decline, took action to maximize their long-run income, aggressively moving to shut down high-cost producers quickly and permanently while pushing the contractors that supply them out of business forever.


To request subscription information for Notes at the Margin, please Contact Us or send us an Information Request.