Is complacency priced in?

There is a very strong possibility that tomorrow the basket price of Opec crude will start with a six for the first time since late June 2015. Ice Brent front-month futures have been sixed-up for a few days now.

Quite the fillip ahead of the group’s meeting at the end of this month, when the key – perhaps the only – point of discussion will be how to keep a good thing going.

Opec has always maintained that the deal to trim output levels, which has attracted co-operation from producing countries outside the group, was not about prices but wholly about drawing down high levels of inventory.

A higher price is a pleasant by-product of this. It has been a slow process, but the Opec basket price is now more than 30pc higher than on 30 November last year, when the deal was clinched.

With a backdrop of third-quarter results that show oil majors’ recovery gathering momentum, it will be incumbent upon those taking the lead in the rebalancing efforts — Saudi Arabia and Russia — to guard against complacency.

In that sense it was surprising to hear BP’s chief financial officer Brian Gilvary say this week that “we are now getting to a more stable period of where oil prices are”. As noted by Wells Fargo, in pointing out that Brent had reached $60/bl much quicker than it thought possible: “There are few ways more likely to instil humility than publishing an oil price forecast.”

An outbreak of over-exuberance at an oil and gas investment conference in London this week — where a fund manager said “we know what [price Brent is] going to be for a while now, certainly for the next 1-3 years” — was more understandable, but no less of a concern for anyone trying to maintain discipline and manage expectations.

A price around $60/bl is decent, given where the industry has been in the past three years. But let’s not start waxing each other’s backs just yet.

The risks in either direction loom as large as they ever did. Demand appears healthy, but how will it react to the winding down of a decade’s worth of central bank monetary policies? Will US policy impinge on Mideast Gulf output, or can the region’s domestic policies get there first? Many of the large producing countries that were looking frayed two years ago do not look repaired today.

Pick your own risk, there are plenty to go around. To a greater or lesser extent, a price-seeker can take account of these. Putting a price on complacency is another matter altogether.

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