Oil prices have hit three-month highs, driven higher by the OPEC+ cuts, the U.S.-China trade de-escalation, the slowdown in shale and the apparent stabilization in the global economy.
There is a debate about how effective the additional OPEC+ cuts will turn out to be, whether the deal is significant or if it is merely a clever bit of repackaging existing realities. But the oil market bought it, helping to push prices up in the days following the announcement. The IEA still sees a stubborn glut sticking around in the short-term, but the extra 500,000 bpd in promised OPEC+ cuts helped change market sentiment.
However, one should not expect prices to surge beyond $75 a barrel until the glut which has been widened by the trade war to an estimated 4.0-5.0 million barrels a day (mbd) starts to decline. So we may not see $75 oil until the end of the first quarter of next year.
I named the so-called OPEC+ cuts as the cuts that have never been. The claim that OPEC+ added 500,000 barrels a day (b/d) to its already existing cuts is a farce to say the least since this new cut merely offsets Iraq’s and Nigeria’s failure to comply with their shares of the cuts under OPEC+ production cut agreement.
The accelerating slowdown of US shale oil production will have some effect on oil prices next year but only if the rapprochement between the United States and China over ending the trade war gains momentum.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London