On 30 November, the Organization of Petroleum Exporting Countries reached a historic agreement to limit oil production to 32.5 million barrels a day, with the aim of boosting the prices of black gold. Since this agreement until today, oil has risen more than 17%, but this escalation has stopped at 55 dollars. Several causes or factors could be putting ceiling on oil: some inventories at record highs, OPEC countries that remain outside the agreement and cost reduction for the extraction of oil shale.
As economists emphasize the ECB in its report Impact of November 2016 OPEC agreement on the oil market , this agreement is a change in the trend in oil prices, but limited and only short term. The ECB has increased its crude oil price forecasts by 19% over the previous baseline scenario. However, the monetary institution sees several risks that could spoil the upward trend in the price of oil and truncate OPEC expectations.
Three factors that intimidate oil
On one side they stand "l a massive existence of inventories accumulated for more than two years of oversupply, which can act as a buffer and have an effect on the response of prices".
A major danger for the price of black gold are the OPEC countries that remain outside the agreement. If political normalization and the clash climate is reduced in Libya and Nigeria, these countries can again reach their production levels for 2011-2012, so that the OPEC agreement will have lost 100% of its effect on supply Of crude oil.
Finally, "the potential oil supply external reaction non - OPEC can put a ceiling on the response of oil prices. In particular, structural market changes that caused the revolution of shale in the US have reduced extraction costs Of this type of oil, a change that will affect the equilibrium price of oil, "the ECB report said.
Production outside OPEC
As Shawn Driscoll, a manager of an energy investment fund, believes that as far as oil production is concerned, "a new wave of oil is coming in. US crude production hit ground in September from our point of view. we believe that the recovery is starting fracking "said the expert in an interview with Barron's.
Driscoll goes further and dares to point out that the 'bearish' oil market will run for at least 10 or 15 years, because the structure has changed, now there are more players producing crude and prices can not go back to $ 100 when OPEC will like it.
For its part, the ECB's conclusion, although not so straightforward, goes in a similar direction: "In the long term, the price of oil will remain tied to the marginal costs of production." The structural conditions of the market have not changed by the OPEC pact, "in any case the market is more competitive today than it was two years ago, as the restructuring of the US oil industry's costs and technological progress have reduced Important in three years. "
