Publications: Notes at the Margin

OPEC's Possible Death Spiral: The Tin Analogy (July 8, 2019)


Anjli Raval and David Sheppard published a provocative item in Financial Times July 2. Titled "OPEC is stuck in a production-cutting cycle it cannot get out of," the article explained that OPEC, Russia, and the other oil-exporting countries need to keep cutting output to sustain $60-per-barrel oil.[1] The authors noted that Saudi oil minister Khalid al-Falih had told reporters that shale-oil areas would follow the pattern of every other producing basin in history:


It will "peak, plateau and then decline", Mr Falih said.

"Until it does I think it’s prudent . . . to keep adjusting to it," he added.


The authors then cautioned that "the problem for OPEC is it may face a very long wait."


The "long-wait" sentiment was reiterated in Petroleum Intelligence Weekly, which also quoted al-Falih on OPEC’s need to keep adjusting. However, PIW added that al-Falih had warned "that Riyadh would reassess production policy if the market failed to rebalance. Saudi Arabia is not 'committed endlessly to continue cutting our production.'"[2]


Reading through the interviews and dispatches from Vienna, one starts to feel that oil producers believe their situation is unique in the history of commodity markets. The reporters and consultants following OPEC have reinforced this conviction. The past suggests, though, that this assumption will be wrong. It also teaches us that those clinging to such beliefs will soon lose significant sums.

[1] Anjli Raval and David Sheppard, "OPEC is stuck in a production-cutting cycle it cannot get out of," Financial Times, July 2, 2019 [].

[2] "OPEC cuts appear endless amid shale surge," Petroleum Intelligence Weekly, July 5, p. 4.


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