• Economy

7 days of Economics: Oil prices, a temporary rebound

François Faure
François Faure
  • The rebound in oil prices has stalled
  • Yet world growth seems to have accelerated
  • Causes rely to the supply side

Oil prices have levelled off since the beginning of the year. Yet world growth seems to be accelerating. A temporary paradox? Let’s have a look to supply factors. First, oil and shale gas production in the United States has picked up again. Thanks to lower operating costs, the number of wells in service surged by 88% between May 2016 and February 2017. At 8.8 million barrels/day in December 2016, production is expected to increase by 0.7 m b/d this year. Second, the November 2016 production cut deal between OPEC and certain non-OPEC countries (-1.2 million b/d out of total production of 33.1 m b/d in Q4 2016) is not being respected by all of the signing countries. 

On the whole, OPEC’s production target is being met (95% compliance), but this is mainly due to Saudi Arabia’s self imposed cuts. Russia, in contrast, reduced its production by 0.1 million b/d whereas it agreed to cut production by 0.3 m b/d. All in all, supply is being reduced much less than operators initially expected.

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