On the Doha Oil Freeze Failure

If the failure of the Doha negotiations to freeze oil production drives a major correction in the oil price, we see it as a buying opportunity. A freeze was a non-starter from the get-go. Too-low oil prices have already done the work of a deal anyway. World production is off 299,000 barrels per day since peak in Q4-2015, led by a 700,000 drop in the US since peak in April 2015. With further global and US drops forecasted, the question is how expected growth in global demand can be satisfied, especially with what we expect will be increasing social upheavals in oil-producing welfare states – such as Kuwait, where a strike has reduced production by 60%. Saudi’s bragging that it can increase production by 1 million b/d is not a bear-case for oil – it’s a hedge against today’s glut catastrophically flipping into tomorrow’s shortage. We reiterate our call for oil to trade in a range from $45 to $60 for the back half of this year.