I’ve been waiting for the last minute to write this column, waiting on the decision of OPEC in Vienna this morning. While the final decision isn’t official, it seems that the cartel has agreed to a graduated 1m barrel a day increase, which will deliver a real 600,000 barrels a day more into the global marketplace.
This will be viewed as a victory for the Saudis – and a very bullish sign for oil and oil stocks.
It still remains to be seen whether the Russians will agree to this proposal, but my thesis all along was that the Saudis were much more willing to deliver much of the proposed increase to the Russians in order to keep the OPEC and non-OPEC deal together. And I am convinced that they wouldn’t have even begun to negotiate with Iran on a 600k increase without knowing that they could get the Russians to go along with the deal first.
In terms of the global supply chain for oil, 600,000 barrels a day does not make up nearly for the shortfall from Venezuela, let alone the coming shortfalls from increased sanctions against Iran, the continued strife in Nigeria and Libya and finally, the coming infrastructure bottleneck that’s already limiting flow in the Permian basin.
We’ve been very clear that this was the strongest bullish case for oil going forward, and another indication that U.S. shale oil supply is far from being capable of responding quickly to supply changes – indeed, proving again the subtitle of my…