Publications: The Petroleum Economics Monthly

Putting a Finger in the Oil Market Dike (April 2017)


Our cover for this report shows an anonymous sheik attempting to hold back the sea of oil created by financial innovation by desperately sticking a finger into the leaking dike. OPEC's problem is akin to that of low-lying nations that may be submerged by global warming, that is, financial innovation is to the oil market what global warming is to countries such as the Maldives. Saudi oil minister Khalid Al-Falih has committed to "doing whatever it takes" to bring order to the oil market. Ironically, as we explain, doing what it takes requires Saudi Arabia and other producers to take their cue from central bankers and state a specific price increase target, boost output, and let markets work freely. Low-cost oil producers such as Saudi Arabia, Kuwait, Iran, Iraq, Russia, Norway, and the United States will do best if the sheik pictured on our cover pulls his finger from the dike and lets high-cost producers be flooded while giving the world a believable price trajectory.