Cairo - Mubasher: The oil price war between major producers is over, according to a recent report by Bank of America Merrill Lynch, published hours before the OPEC summit which will be held in Algeria.

Since 2014, OPEC has engaged in a market share war, as members have increased their oil market share aggressively during the past two years, against a backdrop of falling oil prices, the report said.

“Global oil spare production capacity has dropped on rising OPEC output, and 2020 Brent and WTI crude oil prices have dropped, partly on fears that the cartel will keep growing its market share.”

However, new investments in oil and gas productive capacity have fallen by double digits, not just across non-OPEC players, but across members of OPEC too, the report indicated.

“Our analysis shows that the price elasticity of global oil supply is persistent over time, suggesting a multi-year output crunch ahead for both groups,” it explained.

The report also shows that the effects of lower or higher prices on demand fade after a number of years. In fact, it estimates that a $15/bbl difference in oil prices translates into 1.7 million barrel per day of incremental demand over a 15-year window, an uplift of just 110 thousand b/d per year.

“Our estimates imply that it makes little sense for OPEC to invest aggressively to grow production from this point onward.”

After all, the global oil production cost curve is pretty steep, demand is rather inelastic in the medium term, and the majority of US shale plays are not viable below $50/bbl. Under most scenarios, it added.

“We believe OPEC revenue will likely be higher if no additional investments are made,” said the report.