4) OPEC was already planning a production cut last week given the glut in supply, weakening demand and loss of market share.
Demand for OPEC crude in 2019 was revised down in September from the previous OPEC report to stand at 30.6 mb/d, which is 1.0 mb/d lower than the 2018 level. Demand for OPEC crude in 2020 is expected to remain unchanged from the previous report, to stand at 29.4 mb/d, around 1.2 mb/d lower than the 2019 level.
6) Other supply cuts in the past have generated very different impacts on the oil price, from exponential rises in the 1973 oil crisis to very small increases in attacks in Libya or Nigeria. It is worth highlighting the diminishing impact of unplanned production cuts on the price of oil after the US energy revolution. Since then, when there have been aggressive cuts, hurricanes or geopolitical risks including sanctions against Iran and Venezuela, those events have not raised the price of oil more than 12% for one or two months, according to MeanMarkets .The 2017 production cut, for example, generated only an 8% rise and oil has remained below $ 80 a barrel despite sanctions on Iran, hurricanes and other geopolitical risks, in addition to the unquestionable desire of OPEC producers to get a barrel at $100.
Aramco has confirmed that production will be fully restored by Tuesday, September 17th according to Bloomberg, also reaffirming it has ample inventories and alternative supply sources.
In The Energy World Is Flat, we explain how technology, substitution, and diversification are flattening the energy world and preventing aggressive inflationary pressures.
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Although Aramco has confirmed to suppliers that there will be no disruption and that production will be fully restored by the 17th September, oil prices may spike on the uncertainty and news of different impacts. What is hilarious is that the Saudi Arabia drone attack may drive oil prices to soar, and central bankers may hail the rise in consumer inflation as a success.
Daniel Lacalle is one the most influential economists in the world. He is Chief Economist at Tressis SV, Fund Manager at Adriza International Opportunities, Member of the advisory board of the Rafael del Pino foundation, Commissioner of the Community of Madrid in London, President of Instituto Mises Hispano and Professor at IE Business School, London School of Economics, IEB and UNED. Mr. Lacalle has presented and given keynote speeches at the most prestigious forums globally including the Federal Reserve in Houston, the Heritage Foundation in Washington, London School of Economics, Funds Society Forum in Miami, World Economic Forum, Forecast Summit in Peru, Mining Show in Dubai, Our Crowd in Jerusalem, Nordea Investor Summit in Oslo, and many others. Mr Lacalle has more than 24 years of experience in the energy and finance sectors, including experience in North Africa, Latin America and the Middle East. He is currently a fund manager overseeing equities, bonds and commodities. He was voted Top 3 Generalist and Number 1 Pan-European Buyside Individual in Oil & Gas in Thomson Reuters’ Extel Survey in 2011, the leading survey among companies and financial institutions. He is also author of the best-selling books: “Life In The Financial Markets” (Wiley, 2014), translated to Portuguese and Spanish ; “The Energy World Is Flat” (Wiley, 2014, with Diego Parrilla), translated to Portuguese and Chinese ; “Escape from the Central Bank Trap” (2017, BEP), translated to Spanish. Mr Lacalle also contributes at CNBC, World Economic Forum, Epoch Times, Mises Institute, Hedgeye, Zero Hedge, Focus Economics, Seeking Alpha, El Español, The Commentator, and The Wall Street Journal. He holds a PhD in Economics, CIIA financial analyst title, with a post graduate degree in IESE and a master’s degree in economic investigation (UCV).