Punctuated Equilibrium

A few words on a historic week for oil.

“All farewells should be sudden, when forever.” – Lord Byron

Certain patterns of change in the fossil record are difficult for evolutionary biologists to explain. A species might exhibit little morphological deviation for millions of years. Then suddenly, often in small, isolated populations, shifts of such magnitude occur that one species effectively splits into two. To account for these abrupt appearances of new species, scientists have developed a theory known as punctuated equilibrium, which posits that significant variations are triggered by environmental pressures and genetic drift.

Although only measured in decades, a distinct period of stasis has been observed in liquid fossils—one of mostly steady management of crude oil prices by the Organization of the Petroleum Exporting Countries (OPEC), and more recently in conjunction with a slightly larger group of friends (OPEC+). To be sure, crude oil prices sometimes deviated substantially from where the dominant collective felt comfortable—both on the high and low sides of the target—but few doubted regression to the mean. Below the surface, however, environmental pressures and a fair bit of genetic drift were building.

In the early hours of the market crash that followed President Donald Trump’s long-promised tariffs announcement last week, we couldn’t help but sit up in our chairs to take note of both the timing and the consequences of another piece of news:

“Eight OPEC+ countries unexpectedly agreed on Thursday to advance their plan to phase out oil output cuts by increasing output by 411,000 barrels per day in May, a decision that prompted oil prices to extend earlier sharp losses.

Oil, which was already down over 4% on U.S. President Donald Trump's announcement of tariffs on trading partners, extended declines after OPEC updated its plans in a statement, with Brent crude dropping over 6% to below $70 a barrel.”

A punctuation point if there ever was one.

While many ever-hopeful energy analysts with perpetually bullish outlooks are ascribing coincidence to the timing of the announcements—or insisting that OPEC believes crude oil demand will strengthen in the second half of 2025, or that the group is merely front-running anticipated supply cuts from beleaguered countries like Venezuela or Iran—we suspect something more significant transpired. After a decade of assault by US shale producers, the global market for hydrocarbons has fundamentally shifted. If we’re right, a new stasis may be at hand, and investors would do well to take note. Let’s explore what led up to the OPEC move and what it likely foretells for the future of energy.