After spending several years trying to get my little brain wrapped around energy issues, I’m to the point where I can interpret news reports and figure out for myself what to believe and what reports are just blowing smoke.
Consider the two following articles as illustrations of an article to believe and one that, um, well, ought to be taken with a large grain of salt.
10/2 – Wall Street Journal – An OPEC Output Cut Not Likely to Alter Oil Imbalance – Author cites “many” analysts who think that OPEC cutting production by a mere 700K bopd is not a large enough cut to resolve the oil oversupply, nor will the cut take place quick enough to have any impact.
Previous expectation was oil demand and supply would balance out by the end of 2016. Now the guessing is it will take until mid-2017.
The money quote is from Daniel Yergin (so you know my perspective, I have learned to pay close attention to him anytime he is mentioned):
“The fast and nimble U.S. drillers have taken away some of OPEC’s power. …. Now there’s a lot more oil that is not OPEC oil.”
10/1 – Reuters Media at Dickinson Press (Unfortunately for us and fortunately for the reporter, the article does not attribute a specific author of the article) – Relief arrives for U.S. shale firms as OPEC folds in price battle – If this is the only article you read, you would conclude that OPEC has surrendered in their price war, the oil boom is back, all the idled oil rigs will be drilling in a week or two, and that gas prices will be rising really soon.
The agree to agree understanding amongst OPEC members is treated as a done deal. The agreement is already in place. A new floor of $50 is now in place for crude oil and drillers can move forward on that basis.
The planning to plan a cut of 0.7M bopd is described as a “capitulation” in the article.
Compare and contrast
Look at the contrast. The first article describes the possible production cut as uncertain whether it will happen, uncertain how long a cut will take to implement, uncertain whether it would make any difference if it does happen quickly, and points out OPEC has lost much of its pricing power.
The second article says the production cut is a done deal, the deal is a capitulation by OPEC, the deal create a firm price floor, and the higher prices will get the shale companies out drilling again, like right now.
The lesson this teaches, yet again, is to filter every article you read.