A Note for Bob Dudley, in Platts

Bob Dudley, BP's CEO, recently noted the similarity of current oil market dynamics to those of 1986.  Following the precedent of '86, Dudley suggested that low oil prices could sustain for some time. 

This is highly unlikely.

In the linked article, written for Platt's Barrel, I assess the contrasts and comparisons with 1986.  I agree with Dudley that the proper comparison is 1986, but in that year, oil demand rose by 5% and non-OPEC production fell.  Nevertheless, prices stayed low because OPEC had 13 mbpd of spare capacity and was keen to recover depressed production volumes.  Of course, Saudi Arabia has followed exactly the opposite tack this time, specifically because of the Lessons of '79.  As a result, discretionary spare capacity remains at a premium, only 2 mbpd, and all of it in Saudi Arabia.

If Dudley is right about the comparison--and I think he is--then oil markets will be several million barrels short by late 2015, setting up an oil price spike in early 2016.   The outcome will be exactly the opposite of what Dudley currently expects.  And that matters for a company like BP as it faces a series of potential suitors.