Last week, oil prices strengthened on rumours that OPEC and Russia are working on a deal to help cut global oil production.
And “there’s at least some underlying logic for these players to take such a step now that was not in place back [in 2014],” when prices were higher, says Avery Shenfeld, chief economist for CIBC World Markets, in recent commentary.
Two years ago, he explains in the note, “the Saudis stood by and let crude oil plunge, while actually ramping up output.” At that point, with prices above $70 per barrel, “The Saudi’s feared that if they pulled back on their own production to support prices from a further decline, there was still enough juice in per-barrel revenues to incent U.S. players to expand their drilling to fill that niche.”
But now, he adds, “with prices having dipped below $30 before the story of a potential deal emerging, the incentives for the Saudis to come to the table are very different.” Click here for more on why.
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