The resilience of shale oil has made it difficult for oil prices to recover, despite what is essentially a production freeze by OPEC and Russia. This is not sitting well with them, as what began as a mere flesh wound is starting to gush financial blood and the only suave has been to take on more debt.
As Goldman Sachs recently pointed out, somebody has to reduce oil production for the price of oil to rise past the upper $40s per barrel. It won’t be shale, OPEC or Russia that cuts. That leaves deepwater oil, once again as the target, in lieu of the disruptive Middle Eastern war I still expect.
OPEC still has the cheapest oil on the planet and Russia needs oil revenue to maintain its position as a regional hegemon. The OPEC meeting in Russia on Monday could come with a very serious message to deepwater oil producers and those who would finance them: “Stop building new megaprojects or we’ll bury you with new supply.”
Oil Supply and Demand Are in Balance
These charts from the International Energy Agency of global oil supply and demand indicate that oil supply and demand are in balance.