Don’t expect new highs in oil prices anytime soon

Since oil prices have been divided by 3 since June 2014, the OPEC including the Gulf monarchies, particularly Saudi Arabia, has been unable or unwilling to reverse the bearish trend. A number of analysts basically thought that countries like Saudi Arabia were actually fighting for their market share in an attempt to bankrupt the North American costly production of shale gas. Now that Saudi Arabia has dramatically cut its public spending, this strategy was perhaps more appearance than reality.

First, the drop in oil prices has actually resulted from a rather small decrease in demand and from a very large increase in offer. As a result, the oil prices should remain low as long as the offer remains strong. Second, the uncertainties about the global economy have been a main reason for low oil prices, and will continue to hinder oil prices’ rebound as long as economic confidence remains shaky. In anticipation of a post-high oil prices era, Saudi Arabia has planned a $2 trillion mega-fund that is a mega-signal by Riyadh that oil prices shouldn’t reach new highs anytime soon.