An oil price of between $60 and $70 per barrel is both a "sweet spot" and "pain threshold" that rival oil producers in the U.S. and OPEC can tolerate when it comes to the price of oil and production, according to the head of EMEA Oil & Gas Research at JPMorgan.
"$60-70 is the pain threshold that works both for the U.S. (and OPEC)" JPMorgan's Christyan Malek told CNBC on Monday.
"Above $65 and you saw oil being released from (the U.S.') strategic (oil) reserves and we saw tweets from Trump (criticizing OPEC's production cuts). Equally, $65 to $70 is a level where Saudi and OPEC can manage in the context of their fiscal oil break-even (price per barrel). They'd ideally like higher but it does feel like the sweet spot," he said.
Brent crude futures are trading at $67.26 Monday and West Texas Intermediate (WTI) is trade at $58.46. Malek said that the trouble with cutting production -- and the corresponding rise in oil prices -- is that it encouraged more output from U.S. shale producers as the price per barrel becomes more attractive.
More production from U.S. shale producers could affect supply and demand dynamics, putting downward pressure on oil prices if supply outweighs demand.
"The issue, however, is that at that (price) level you are seeing more U.S. shale production, more non-OPEC non-U.S. production, meaning that what you could end up seeing is a transient period of tightness but just a continuation of this oversupply that continues to recur over the next 6-12 months so you never actually see a tight market."