A few thoughts on the OPEC++ meeting. Great effort from all parties so far, at least on paper. Now what does that mean for oil prices? We are still likely to reach tank top late April/early May. But inventories are likely to then draw from June onwards and reach today’s levels 1)
in about 1 year. Is it good news for oil prices relative to the alternative of no deal or much smaller cuts? I am not so sure. Large production cuts would have happened through shut ins from May onwards anyway due to the lack of demand and storage availability. 2)
It would have been a lot more disorganised. The weakest producers would have had to go under or be bailed out by the government. Assets would still have been taken over by stronger oil companies. I think it leads to lower prices a year down the road relative to if 3)
there had been no cuts agreed. It also creates moral hazard. There will be less shut ins than if there had not been a large cut, as producers will resist shut ins as they know the others are cutting and inventories are 4)
likely to go down from june onwards. So basically the winners are the producers that are not forced to cut, and the consumers that will enjoy lower prices in the next 2 years relative to if there had not been a cut.
