While the World Cuts, the US Pumps
With Saturday’s formal agreement by OPEC non-members to add 558,000 barrels per day to members’ already announced 1.2 million cut – and with Saudi promising even deeper unilateral cuts – we are in sight of our $65 price target for crude at year-end. We think this decision by producers only ratifies an intensifying mismatch of demand over supply – but it focuses the market’s attention on that mismatch, and will make sure that such a mismatch occurs even if our reasons for having expected it all along prove wrong. Though US production fell furthest during oil’s two-and-a-half year bear market, production rose for only four OPEC members. The US emerges as the world’s swing producer, able to ramp up production in response to higher prices while everyone else cuts production to assure those higher prices.