Oil is rebalancing but US shale will cap prices

Subject

Oil price outlook.

Significance

The emergence of a backwardated oil market structure, with prices for future delivery lower than spot rates, suggests the oil market is beginning to rebalance. However, whether it will be sustained is dependent on continued OPEC and non-OPEC compliance with agreed cuts.

Impacts

• The price-responsive nature of US shale production creates a ceiling on oil prices between 50 and 60 dollars per barrel.
• OPEC's cuts mean it risks losing share to US shale if prices rise, but it cannot risk a retreat; this dilemma may undermine OPEC compliance.
• The next OPEC meeting will take place in Vienna on November 30 and whether the OPEC-non-OPEC cuts should be extended will be discussed.