January 26, 2022

OPEC+ Still in Control = $80 Oil Floor?

Oil prices are near multi-year highs, but the futures curve predicts a “return to earth” in 2022. We disagree. One reason is that we expect the expanded OPEC+ group of 23 countries, including Russia, to remain disciplined. The Chart shows that OPEC production outside the Middle East is set to shrink, concentrating power in the hands of a few countries. Another reason is that U.S. shale producers will have to ramp up drilling to even increase production moderately, after having used up their inventory of drilled but uncompleted wells (DUCs). On balance, $80 WTI is more likely to be a floor than a ceiling in 2022.