OPEC

What are the odds of any deal really resulting in a higher oil price in the medium to long term? Higher prices almost automatically lead to more investments, not just in classic development but much more so in shale, which above all is a disruptive technology that has numerous multipliers linking higher output to higher oil prices. A $60 oil price would significantly boost investment in shale production and technologies. But not only shale, it would help electric (and hydrogen) as well.

How realistic is a production cut? Iran reached a peak of 6.6mbd in 1976, with sufficient time and investments that is a possible target for a decade hence. Iran’s political agenda is countered by the Saudis but at this time the Saudis produce 11.6mbd and would stand to benefit much more from higher prices and the political clout that buys than the more economically diversified Iranians. There are many other good reasons for an agreement to fail, best of all is that it is counterproductive.

The difference between traditional oil on the one hand and electric/shale/hydrogen on the other is that the latter are technological ecosystems that continue to mature very quickly especially when prices and hence investments are high while traditional oil already is highly optimized. As for electric, already in Europe a Tesla is cheaper to operate per kilometer than e.g. an Audi A4 or A6 diesel, even at current oil prices. With the model 3 also the purchase price will make for a far more competitive car. Electric now is entering the mainstream with many manufacturers investing significant sums in electric cars. That also in response to European countries having to meet their 2030 targets and Chinese cities urgently needing to reduce pollution. Hedging on political pressure to counter climate change is not a losing proposition considering the urgent science.

And also, the projected growth with which hundreds of millions more are entering the market for their first car is not as rapid as anticipated in the first decade of this century, there just won’t be as many cars to fill up.

It’ll be fun to see the OPEC cartel fail again, no such conspiracy should succeed. Especially one so overtly designed to make us all pay far too much for a resource in ample supply should eat humble pie again and again.

https://www.ft.com/content/3982aef2-8193-11e6-bc52-0c7211ef3198