"Crude, the market whipping-boy, may have been cut a break this week with all this currency craziness, but don’t expect anyone to forget the dour view for oil. It looks wise enough to be wary in the short term, but BNP Paribas is urging its clients to think ahead and be ready to go long oil.
Despite what some think, OPEC’s hard-ball tactics on output are probably not aimed at driving out shale producers, who have low up-front costs and short lead times on production, says Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas.
“We believe OPEC is playing a long game by creating a lower oil-price environment that will lead to cancellation/postponement of investment in non-OPEC countries outside the U.S.,” he said. This covers deepwater offshore supply projects in Brazil and Nigeria, or even Canadian sands — all of which have up-front capital outlays and long lead times. These places all need a higher oil price to keep going.
“In a few years’ time, the resulting supply shortfall and failure of new supply to jointly meet demand growth and offset natural supply decline from mature fields will strengthen OPEC’s hand — and for a prolonged period,” said Tchilinguirian."
