Abstract:History often repeats itself in the cyclical industry of oil and gas, and market expectations are that the Organization of Petroleum Exporting Countries (OPEC) will be eventually able to organize either a OPEC price cut to lift prices or a major agreement with nonâ€OPEC producers such as Russia, Norway and Mexico, as it did in 1998, to move oil prices back onto a sustainably upward path. Even recent history might imply this is highly possible. In 1999, 2003, and 2009 low oil prices stimulated increases in demand and created an environment where a reasonable agreement between OPEC and nonâ€OPEC oil producers could boost prices substantially.
But assuming this normal pattern of market clearing will take place again as usual looks to be a good deal riskier this time around. This wishful thinking fails to recognize the transformational role that unconventional oil – U.S. shale, Atlantic Basin deep water and Canadian oil sands are playing on the supply side – let alone the impacts of significantly lower oil intensity as well as global climate agreements on global oil demand on a forward looking basis.