OPEC and non-OPEC members worked hard to reach an agreement that will, hopefully, move crude not only into balance but into supply deficit sooner rather than later. When deficit will occur is a matter of some debate. Some believe, such as the IEA that it will happen in First Half 2017. More energy traders seem to believe, based on the current spreads in futures contracts, that the deficit will not occur until Second Half 2017. (See this week’s Ty’s Take for a very brief explanation of a very complex topic).
One thing I mentioned in last edition’s Ty’s Take is that I am scared the U.S. would blow up the party if producers jump too soon and rush to lock in cheap rig contracts and otherwise benefit from lower service pricing (as we all know, as demand goes up, if supply is constant, so do prices). Because the reality is this accord that has been reached amongst OPEC and non-OPEC members is only for six months, is very fragile, and while it theoretically throws the market into deficit (assuming compliance by signatories to the agreement), it is not that substantial of a deficit in the grand scheme of things. And one must wonder, if OPEC feels like it got the short end of the stick, might it turn the pumps back on in six months? Nevertheless, I tempered that with my note that banks, and others who control the purse strings, would have to loosen up and they were not likely to do so until they are confident that the recovery is sustainable.