Publications: The Petroleum Economics Monthly

The thought that they might create a huge incentive for oil drillers likely never crossed the minds of the oil ministers from OPEC and non-OPEC nations who met first in Algeria last fall, then in Vienna in May, and finally in St. Petersburg in July. They did, however. These ministers literally invited investors to pour billions into funding short-cycle drilling projects undertaken by numerous "non-legacy" oil companies. The consequence has been an unexpected increase in US oil production, a boost that could come close to offsetting the output reductions by the OPEC and non-OPEC producing nations that make up what we’ve been calling the Vienna Group. The investor response, along with the reaction of consumers to the prospect of higher fuel prices, has mostly negated the impact of the Vienna Group’s production cuts. As a result, oil prices have essentially gone nowhere. This report delves into the details of this situation and the market implications.