Pressure Rising on OPEC to Develop Long-Term Output Plan

The battle between OPEC and shale oil producers can be characterized as a two-round fight. In the first round, shale producers gained market share and the price of crude crashed. In the second, OPEC curbed output as shale producers adapted to the lower prices. Now, get ready for round three, as OPEC and Russia try to plot a way out of their production cuts but likely get stymied by market twists and turns that upset their calculations.

The approach of OPEC and its allies for the coming year is clear. Brent crude has just risen above $70 per barrel, apparently confirming the success of OPEC’s plan. Production cuts have been extended until the end of 2018, and excess inventories are being drawn down. But as usual, demand in the first half of the year looks to be relatively weak, meaning any reduction in inventories will have to come in the second half.