The following is a summary of our recent podcast interview with Robert Rapier, which can be listened to on our site here or on iTunes here.
Long-Term Strategy Shift
Robert Rapier regards OPEC's move to cut production as “very significant” because it signals an important shift in strategy.
Saudi Arabia, the most influential member of OPEC, is now leading from the front having “taken 40% of the cut” and sending out clear signals to cartel members to maintain discipline.
Robert concurs “yes things will happen and oil is not going to go up in a straight line here, but it signals a strategy shift...(that) will last for some years.”
Their fear right now, Rapier said, is “how much shale producers can ramp up production relative to how much OPEC is going to cut.”
OPEC participants realize that curtailing output is a double-edged sword as it gives breathing space to higher cost shale producers, but it is a necessity given member states like Venezuela are "teetering on the brink of collapse.”
We've Had Enough!
“I think OPEC is saying that we have had enough of -50 oil” and “their decision takes a lot of the downside risk out of oil prices.”
He also forecasts that OPEC will remain ambitious in their outlook and probably try to get oil back to or more.
Further, he stresses it would be in the mutual interests of the member states to exercise resolve and discipline, and only then will the effects of this seismic shift in policy be fully translated into oil markets.
Gainers and Losers
Robert's outlook on US economy, with increasing oil prices, is more cautionary: “I have always said that as long as the US is a net importer...oil prices going up are not going to be good for the overall economy.”
He says that a price appreciation in crude is akin to a “stealth tax,” which would erode discretionary incomes.
Rapier agrees that the effect on the economy has been mitigated because of shale production but, overall, “it is a net negative.”
On market gainers and losers, Rapier feels that “shale guys” will be the real big winners, mid-stream players will benefit, but “refiners are gonna get hurt.”
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