OPEC’s decision to defend its market share by opting for freewheeling crude oil production appears to be working. It was only a few months ago the International Energy Agency said the market was “drowning in oil” and prices plummeted to less than $30/b. Fast forward to July and the IEA said there had been an “extraordinary transformation” from a major surplus in the first quarter to near-balance in the second. Non-OPEC production remains on course to fall 900,000 b/d this year before staging a modest recovery in 2017, according to the IEA. Meanwhile, OPEC production hit an eight-year high in June, helped by Iran’s post-sanctions return being better than most analysts expected. Couple that with Iraq’s substantial rise in 2015 and the IEA commenting that “low-cost Middle Eastern OPEC countries have seen output rise steadily in recent years” and not only is OPEC defending its market share, it’s slowly increasing it. So far, so good. However, there are a number of flaws to the plan. First, it has only delayed the inevitable. US shale producers are becoming more flexible and prices around $50/b start to make it economic for some to increase output. Second, even the better placed OPEC members
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Source: CTRM Center