In the Year 2016 Black Swans Doubled-Down on Unknown Unknowns
In a year that delivered a long list of significant Black Swan surprises both globally and regionally, from Brexit to Trump on the world stage, to Michel Aoun finally landing the prize of the Lebanese Presidency, we now have to add the return of OPEC to this growing list of Unknown Unknowns from only a few short months ago.
OPEC, like the proverbial cat, has nine lives. If the 50+ year-old oil exporters group can survive Carlos the Jackal, they can certainly withstand an assault on their market share from bootstrap shale drillers in North Dakota.
Forever dismissed as an irrelevant 20th century group of disparate and desperate member states, too many repeatedly fall into the trap of misdiagnosing a sleeping bear in hibernation as a dead bear. But like the sleeping mammal, OPEC usually wakes up with a roar when it is hungry from sustaining far too long on far too little, and clearly like $10 oil in the late 90s, we have moved beyond the pain threshold of sleeping indifference.
The question now is how starving are Saudi Arabia and Russia, how much output cutting are they willing to do to fill their fiscal coffers after a few years of deficit once the other sleeping giant of shale oil producers reawaken on Trump steroids?
I suspect, like the early 90s, we are in for a few rounds of supply reductions over the coming 24 months to clear the record oil inventories, accommodate the return of the Yankee roughnecks and a little cheating from OPEC.