• Fayaz Ahmed

Parallels Between Game of Thrones and Oil Prices - Part 1

Updated: Nov 24, 2020

The uncertainty in the Game of Thrones which has made fans go totally gaga over the show is the very same factor making oil price fluctuations very interesting. May it be Ned’s untimely execution, Rob and Catelyn’s cold blooded murder during red wedding, John’s death prior to resurrection, and burning of great Sept of Baelor into ashes by Cersei. I bet nobody saw those things coming while watching the show. Same goes for oil prices; you never know which way oil price rollercoaster is going to move. After June 2014, 100 $/bbl oil started tumbling and within no time oil prices hit 14 Years record lows to 26.21 $/bbl in February 2016.

The Organization of the Petroleum Exporting Countries (OPEC) has had the great time ruling the oil market of above 100$/bbl for long until Shale phenomenon popped up around the world specially in U.S. Shale producers started gushing the market with too much oil eventually crashing oil prices very badly. This time even OPEC lead by Saudi find its challenging to stabilize the market without losing their market share.

OPEC and Cersei share great deal of similarities with each other, both are ambitious and desperate to maintain their dominancy at all costs. As Cersei, didn’t hesitate to reduce the Sept of Baelor to ashes for killing her enemies (High Sparrow, Marjaery) in the finale of Sixth Season. Saudi also flooded the oil market with an attempt to lower down oil prices to a level where their opponents (U.S. Shale Producers) could run out of business which didn’t happen. Shale Producers survived even below 30$/bbl due to their resilience and cost effectiveness reducing rig count to half without significant production decline. Unfortunately, OPEC like Cersei ended up having nothing but pain in their asses; Cersei lost her only remaining child while OPEC lost decades’ strong hegemony over the oil price market.

On the other hand, U.S. like John Snow is just getting started with the shale boom. You do remember when John marched north of the wall and fought with ferocious wildings and white walkers. People started speculating about how long will he be able to survive in that rough environment. He proved all the speculations wrong with his relentless struggle for survival and sheer resilience; not only he returned to castle black unscathed but also escaped death when betrayed by the brothers of Night Watch. U.S. Shale producers have been going through the same scenario, OPEC has done everything possible to suppress shale production from U.S. to maintain their market share, OPEC assumed that lower oil prices won’t allow U.S. to produce hydrocarbons from high cost Unconventional Shale Plays eventually their production would decline but no significant decline was seen during this downturn.

The bad news is everybody wants to pump more oil to retain their market share with already overflooded market. After couple of failed attempts, OPEC has finally agreed to limit their production to 32.5 MMbbls/day from current production of 33.24 MMbbls/day to ease the glut. I am afraid this time market dynamics are different, and OPEC won’t be able to stabilize oil market alone in their traditional ways due to following immediate challenges: How OPEC will be able to implement freeze deal when their own house is not in order? What if Russia doesn’t comply with output cap proposed by OPEC? How will they tackle expected surge in U.S. output if oil prices improve post successful freeze deal? Although this freeze deal has given a lot of hope in petroleum circles for improving oil market; but I don’t see that thing happening anytime sooner. I bet “Winter is Coming”.

#oilprices #oilmarkets #gameofthrones

28 views0 comments