Publications: Notes at the Margin

One of OPEC's Problems: Ossified Advisers (October 31, 2016)


At the IAEE's North American conference in Tulsa, some consultants and advisers asserted that Saudi Arabia was determined to raise crude prices to $65 per barrel and take whatever steps necessary to bring markets into balance. They added that the global inventory overhang would be worked down so producers could regain control of the market. The possibility that oil traders might fail to cooperate and instead hold surplus stocks to wait for even higher prices was not considered. Apparently, oil producers and their key advisers still believe they can control outcomes and prices. They are incorrect and consequently, as a recent report by the consulting firm Oliver Wyman suggests, oil trading firms such as Vitol and Glencore are feasting on the ignorance of oil producers. Under these circumstances, there is no chance that oil-exporting countries will succeed in cutting production to support prices. Ossified advisers have likely assured Saudi Arabia that its effort will work—it will not. The Saudis are ill-served by such "yes men."


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