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00:00The baker is an opaque chasm able to push prices up and even the broader group of producers the non opaque producers like Russia that have joined them is because some of the balance of power balance of production is now in the Americas particularly the United States and so not only do we have some challenges with OPEC's cohesion and with the selected non oil producers but we've seen this significant costs compression as supply chains have gotten tighter and the United States and so shale producers have made it very difficult to balance the market you know there was a perception out there 12 months ago that Saudi Arabia would fight tooth and nail for its share of energy markets. What's happened there are the Saudis just don't all developed an allergy to prices at this level and they're unwilling to cut price to grab market share. Yeah well I mean I have definitely I mean I think the Saudi is God concerned about how long they might have to live with rather low prices. I think they had a view initially a year or a year and a half ago that they could spend their way out of a short term price drop . Right. Saudi Arabia has a lot of financial assets. It has a lot of scope to stimulate the economy. But if you have to do that for several years suddenly there five hundred billion dollars six hundred billion dollars of foreign currency reserves start to dissipate very quickly. I think also at first they underestimated they underestimated the ability of U.S. shale producers and even as your other guests have said some of the Canadian oil sands producers to push their suppliers and bring down some of their production costs on existing things. And if anything in the last couple of weeks for me one of the key catalysts that has made me more bearish on oil prices has been the fact that the cost declines in the U.S. shale have not only been in the Permian Basin where they've been for some time but also in the Bakken and other areas. And so I think from the Saudi Arabia's perspective the other thing that they were really worried about was just that the oil market would really struggle to come into balance and that would be a bad time to be floating some of the Aramco assets and other privatization. They want to do some interesting stuff. Rachel you know we like to talk about geopolitics on Mondays on Bloomberg n0 question for you why in a moment of kind of heightened geopolitical risk and go round the globe but you start with the embargo of Qatar. Why are we not seeing geopolitical risk which historically correlates with higher energy prices translating through so I think there are two reasons right here. One is that if anything some of the geopolitical risk we're seeing right now especially in the Gulf is actually if anything going to encourage a bit more oil production. We don't know we think the countries are going to stick to their pack their Vienna Group commitments. But on the margins they might try to produce a little more energy supplies. Energy trade has not been affected yet in part because in our view all the Gulf producers want to make sure the global markets know they're reliable producers . The other reason and this is broader because we've seen not only issues in the Middle East but issues between Russia Ukraine issues in Asia in in our view if any there is still such oversupply in the markets so that there is extra capacity that could be brought to bear out of further supplies that might limit small reductions in output. So that's another reason . And then some other degrees of geopolitical risk. The third reason they are feeding into if anything some challenges to global growth. This is a pretty strong global growth environment right now especially in developed markets even in some of the big emerging markets. But oil demand growth is slowing down a bit. So you put that all together and the geopolitical risk premium I think has really structurally shifted. We Mike it. If we look ahead a couple of years it might become more meaningful again. But I think we'd need to see a meaningful tightening of the market first what countries were aged. Are you looking at that could potentially cause either supply shocks or demand shocks . Sure so the big one the big ones I'm watching are the big Middle Eastern producers particularly Iran and anything that might lead to a reimposition of sanctions. We don't think the U.S. has the interest in trying to reimpose nuclear sanctions and the global commitment is not there but taking some of those supplies off line would be meaningful. Anything that impacted Saudi Arabia's supply and I would think any producer has to be factoring in an authorization of losses out of Venezuela Libya and Nigeria at this at this point. We think there is enough supplies on the demand side. The real big ones I'm watching are the US China and India. India emerged as one of the largest sources of demand growth in the last few years. And we think that investment in and the overall economic growth is going to be picking up. There will be some energy demand growth China demand for energy products is probably stronger than other commodities. But we are seeing some structural shifts to more fuel efficient cars for example. And then of course the United States which tends to be a country where drops in gasoline prices trigger a bit more demand .

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Analyst Ziemba Says OPEC Pricing Power Less Effective

After the sharp fall in oil prices at the start of 2016 analysts predicted a health rebound as supply and demand stabilized. Today, global oil prices remain mired below $50 a barrel. What is the future of oil as the world's most traded commodity? And what could change oil prices in the short, medium and long term? Bloomberg’s Rudyard Griffiths talks to Rachel Ziemba, senior research analyst at Roubini Global Economics. (Source: Bloomberg)

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