OPEC to continue targeting shale gas producers with price-restraining efforts – Nomura

FXStreet (Barcelona) - Richard Koo, Chief Economist at Nomura believes that OPEC intents to push prices lower to prevent further increases in output of shale gas and other alternative energy sources.

Key Quotes

“Moving overseas, the recent plunge in oil prices has focused attention on stock market volatility and problems in oil-producing countries such as Russia and Venezuela. Even in the relatively strongly performing US economy, there are concerns about the damage that energy-related companies and banks will incur from the fall in oil prices. I myself did not anticipate a drop of this magnitude.”

“At the same time, I think the decline this time has to a large extent been engineered by Saudi Arabia and other OPEC members worried about the emergence of shale gas and other alternative energy sources.”

“OPEC members are publicly stating they will not lower output even if oil prices drop to $40 (or even $20). This stands in sharp contrast to the behavior of the group’s members in the past, when lower prices typically prompted them to cut production.”

“I suspect OPEC’s intent is to push oil prices down enough to prevent further increases in output of shale gas and other alternative energy sources, which would threaten both the oil-producing nations’ revenues and their political influence.”

“If the recent price drop is in fact part of an OPEC strategy, prices are likely to remain low until there is a clear change in the development plans of US shale gas producers.”