Drilling Down on OPEC and the Oil Market

Fifty is only half as good as one hundred, but it's twice as good as twenty-five. That's how anyone who is anyone in the international oil business saw it earlier this week when they gathered in Houston for the annual CERAWeek conference sponsored by HIS Markit, the data and information firm. They were referring to the per-barrel price of crude oil, of course. When they gathered last year, prices hovered around $25 per barrel as the Saudis sought to drown the U.S. shale oil industry in cheap Saudi crude. New year, new oil minister. Khalid Al-Falih, now in charge of Saudi policy, has whipped other producers into line to cut back production, and the mood as the conference opened was "ebullient, buoyant, hopeful," James Carr, Canada's natural resources minister, declared. Bob Dudley, CEO of BP, announced he is planning that prices will hold at $55 to $60 for the next five years, high enough to allow him to maintain capital spending at current levels, rather than continue cuts that have caused him to sweat 30 percent out of his capital budget since the oil price collapse of 2014. "What a difference a year makes", enthused one oilman. Alas, what a difference a day makes. On Wednesday, the unopened champagne bottles were returned to the coolers. The U.S. Energy Information Agency (EIA) announced that crude oil stockpiles are at record levels after jumping in the past month by 8.2 million barrels, rather than the 1.7 million barrels experts had forecast. Prices fell by about 7 percent, more than $5 per barrel, to below $50, as fears grew that the agreement by OPEC members and 11 non-members, including Russia, to rein in production is failing to prevent a continued over-supply of crude. That's one reason ConocoPhillips CEO Ryan Lance is betting prices will be "lower for longer … [it's a] "well-supplied world out there."...more