OIL PRICE WARS & OPEC+ There is a lot of talk about Saudi Arabia losing market share to US (true, but not new), comparing current situation to 1985 and 2015-16. Some are suggesting, tht KSA should "flush" the weaker players out of the market, raising production. My 2c here: 1. I do not really see what flushing out would achieve: US producers are much stronger financially than in 2015. And non-US too - we have just went through pandemic period, which has probably forced out the weakest players already. All that 1-2 years of low prices would achieve is more consolidation in the hand of larger players (which would be able to buy assets at cheaper prices). This will mean less hedging (OPEC+ would lose even more advantage vs forced hedges created via tightening inventories and curve backwardation) and in general stronger competition. 2. I also think that comparisons with 1985 or 2015-16 are misplaced. - in 80s oil demand was around 60mbd, and non-OPEC supply grew 6 mbd from 1979 (when OPEC production started to go down) to 1985 (OPEC data). Demand during the same period dropped 5mbd (from 65 to 60). So overall the ex-cartel balance worsened by whopping 18% and the market had huge spare capacity by the time KSA tried to institute formal quota system. At the bottom, Saudi's production was 3.17mbd on annualised basis (dropping even lower in certain month) - vs 10mbd at peak (1980). We are nowhere near that. OPEC's share of production was around 44% in 1979 and it dropped to 25% in 1985. - 2013-15 has more similarity with the current situation, but it still was quite a bit worse (for OPEC): OPEC's share of liquids production was only around 37%. Non-OPEC supply added 5.6mbd in 3 years - more than the world consumption growth during the same period. Starting price levels (around $100) were much higher than current - especially in real terms. Also let us not forget how 2015-16 ended: OPEC+ was formed in 2017 - despite the fact that U.S. shale (the main threat and source of non-OPEC and world production growth) did not stop growing. - now OPEC+ controls 50% of world liquids production and over 50% of crude. There is a difference of opinions on the scale of non-OPEC supply growth, but most likely it will be lower than world demand increase on a 4-5 years horizon. Mainly because of non-OECD ex China group of countries (40% of demand), where working population grows 1.5% p.a., current oil consumption is only 2.7mbd (vs 13mbd in OECD and over 21mbd in US) and infrastructure/ government policy would not allow for material EV adoption during this decade. Even if demand disappoints and non-OPEC supply outperforms it is hard to imagine a scenario where ex-OPEC+ balance would worsen by more than 1-2mbd (on average - i.e. in a non-recessionary scenario). 3. OPEC+ is obviously "long" oil. While they probably believe that "peak demand" is still far away it is prudent to plan otherwise. in this context, starting a price war and reducing revenues in the next 1-2-3 years materially in a vague hope to hurt non-OPEC supply and enjoy dominance later (when demand may not be there) may not be optimal. Of course, there is a limit to everything - there are market setups, where cuts would not make sense. Also if cohesion in OPEC+ worsens and the burden falls on KSA, Saudis may change their strategy. But for now it is simply too early to say that OPEC+ has failed: - the market before the cuts seems roughly balanced (I am looking at Kayrros crude data and GS tracker) - which is worse than expected (draws were forecasted), but not a tragedy - while US has outperformed, the scale of outperformance is lower than it looks (see my previous note on GOM production and "adjustment") and it is not crazy to assume that 2024/23 US growth would not exceed OPEC's assumptions (600kbd) - recession is possible, but if there is a recession and OPEC+ decides against "flushing out" they would have to cut anyway. P.S. There is a good short article by @anasalhajji on price wars: anasalhajjieoa.substack.com/…