Following the 2014 crash in oil prices, a number of leading market commentators concluded that the era of geopolitics mattering for the oil market was over.
In their view, short-cycle U.S. production was waiting in the wings to fill any supply gap and would swiftly cap any price upside. It was in this context that OPEC’s obituaries once again abounded, with the sovereign producer group seen as resigned to lower for longer (or even lower forever) and too hopelessly divided to return to active market management.
Yet even now, despite the recent run-up in oil prices, this narrative continues to carry considerable currency. The teaser for the panel on energy markets that I am speaking on at the Milken Institute Global Conference, highlights relentless U.S. production offsetting OPEC reductions, renewables disrupting traditional energy markets, and the geopolitical implications of US production growth displacing Russia as the world’s largest oil producer.
Yet, we think that there are broader geopolitical factors at play, as geopolitics have returned to the fore for a number of major producer states as well as the oil market generally in 2018. The oil market has tightened significantly in no small part due to the effectiveness of OPEC in draining bloated global inventories as well as the healthy demand outlook.