Column: Oil price spikes and permanent consumption losses | Reuters
Promises by U.S. shale producers to pursue a more restrictive approach to capital investment and production seem to have emboldened Saudi Arabia and its allies in OPEC+ to test the room for higher oil prices.
If shale firms respond to higher prices and revenues by returning capital to lenders and investors, rather than increasing output, there may be an opportunity for OPEC+ to let prices rise without losing market share.
“Drill, baby, drill is gone for ever. Shale companies are now more focused on dividends,” the Saudi energy minister said in an interview on March 4.
“It’s the shale companies which are themselves changing. They have had their fair share of adventure and now they are listening to the call of their shareholders.”
The kingdom’s interest in testing support for higher prices comes when many investors are expecting a strong upward cycle, or even supercycle, in oil and other commodity prices.
Strong economic growth after the COVID-19 pandemic, coupled with expansionary fiscal and monetary policies, is expected to accelerate consumption growth for oil and other commodities.
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