OPEC, the most successful cartel in history?

Hayward who now runs Iraqi Kurdistan focused Genel Energy and is Glenore’s chairman said OPEC’s ‘drill them into the ground’ strategy had paid off. He said the decision to stay the course in November forced the more expensive producers in the States into unprofitability leading to a massive decrease in the number of rigs currently in use, down 877 to 954. “The supply chain in the US has been decimated…it will take several years to take activity back.”

Hayward suggested this withdraw of investment would soon lead to a major transformation of the industry’s fortunes, claiming, “The actions the industry is taking to withdraw capital are laying the seeds for the next bull market.” He drew comparisons with the situation at the end of the 1990s when oil companies slashed investments, which ultimately sparked an oil price rally to record highs in 2003-2007.

Hayward isn’t the only one urging confidence in the industry’s future. Paul Horsnell from Standard Chartered says there never was a glut and ergo a change in circumstances could radically alter prices. Speaking to The Wall Street Journal he said, “The global surplus in the first part of the year was 1 percent. It will be gone by July and the market will be in deficit as we move into September.” So too do Vitol’s chief Ian Taylor and Charif Souki of Cheniere Energy.

It is however worth noting that others have adopted a more cautious approach. Professor Alex Kemp, the petro-economist, said he expects to see a progressive and steady rather than speedy growth in prices which will take a few years. Douglas-Westwood MD Andrew Reid said he could see a bounce back but not this year, rather 2016.

Regardless, if things keep going this way, it will have taken OPEC only six months to face down the US shale oil boom. While some within the group felt the pain, there was never a chance of it adjusting its course. In Switzerland, Hayward called OPEC the “most successful cartel in history.” So, it probably doesn’t give a stuff about fate.