OPEC initiates a price war; implications. OPEC has historically supported oil markets by curtailing production in periods of oil price weakness. Their systematic approach worked well to balance oil markets when oil prices collapsed in 1998-1999, in 2001 and again during the GFC - as illustrated in the chart below. By willingly allowing the oil price to remain weak, OPEC and namely the Saudi's have essentially started a price war with US shale oil production. Key OPEC members Saudi Arabia, Kuwait and UAE all boast production costs averaging ~US$20/bbl, substantially less than the marginal cost US shale producers, some with production costs of up to US$80/bbl. The Paragon Fund November Monthly report looks at this price war in more detail and reviews a short position in Santos (STO) and a long position in Qantas (QAN). Click on the link to access the full report: (VIEW LINK)

Nathan Lim

Do you have any thoughts on how long OPEC can sustain this war given the view that the Gulf States need a high oil price to balance their budgets.