Bison investments

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Fraser921
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Joined: Mon Mar 22, 2021 11:48 am

Bison investments

Post by Fraser921 »

In light of President Biden's recent call for more oil production from OPEC, it is timely to share Bison's analysis of OPEC+ spare capacity. In short, we think there may be less spare capacity than advertised. Unseasonable and record high natural gas prices in Europe and Asia may be an early warning of what could happen with oil. As the world recovers from Covid-19, we anticipate all time high oil demand as travel rebounds and suburbanization continues. There may not be capacity to supply sufficient oil to meet demand, requiring price-driven demand destruction of the sort we’re now seeing with $150+/barrel equivalent prices for natural gas in Europe and Asia


As energy prices across the globe rise, many observers and pundits continue to downplay the possibility of a global energy supply crisis, often citing OPEC+ spare capacity as the panacea. The perception that OPEC+ is flush with spare capacity is pervasive. But due to a lack of reliable data and no formal reporting or verification requirements, many industry experts and analytics firms have adopted OPEC+’s self-reported numbers. No one knows exactly how much spare production capacity OPEC+ really has, and few seem interested, despite the potential implications.

Below, we explore this possibility in-depth, with a particular focus on OPEC+’s two most important producers, Russia and Saudi Arabia.
OPEC+ - Dominant Oil Cartel
OPEC+ controls about 50% of global oil supply, most of which comes from Russia and Saudi Arabia. The latter are known as “swing producers” because they can adjust their spare production capacity in response to changing market fundamentals. As of July 2021, EIA estimates that OPEC+ has 6.9M bbl/d of spare capacity, approximately 75% of which is controlled by UAE, Russia and Saudi Arabia. Saudi Arabia controls the lion’s share of the cartel’s spare capacity and therefore holds the most sway over major cartel decisions. Historically, there has been a negative relationship between oil price and spare capacity, as the cartel has reacted to rising prices by increasing production, and reacted to falling prices by withholding production.
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