OPEC met on the weekend and agreed to a new oil flood. It has tried to hide it but the flood is there. UAE and others were granted 1.63mb/d in new baselines, on top of a full return to 2019 output levels of another 5.8mb/d. The magic trick is that is will all come in 400bb/d increments until fulfilled. So the full ramp-up will take until the end of 2022. That is if you believe the members won’t cheat, which they will. But that does not include another possible 2mb/d from Iran which is also likely, in my view:
The cartel has backloaded the ramp-up like this to deepen backwardation of futures so that US shalers have more difficulty with hedging. But, frankly, the entire deal is a red rag to a shaler bull. They move aggressively now or they lose market share over this economic expansion.
The outcome is is both bullish and bearish. It takes away the tail risks of an OPEC price war. But shale is still egged on. It ensures supply remains somewhat contained but still ensures it, also removing $100 tail risks.
