The Low-Cost OPEC Cycle: The Big Elephant in the Room

In 2015, oil demand growth, which surprised on the upside, was responsible for most of the adjustment in the oil market imbalance. In 2016, oil demand growth started slowing down and the baton of adjustment passed to non-OPEC supply, particularly US shale, which has declined sharply in recent months. So far, the OPEC cut feedback mechanism has been absent in this current downturn, and instead, Middle East-OPEC (led by Iraq and Saudi Arabia and joined recently by Iran) has been a major contributor to oil supply growth. ….