In the nine days since Saudi energy minister Khalid al-Falih declared in Abu Dhabi that OPEC and its allies were considering production cuts in 2019, oil prices have plummeted almost 12%.The sell-off, if it lingers, could pressure the 25-country OPEC/non-OPEC coalition when it meets next month to announce cuts greater than the 1.4 million b/d that it has signaled could be necessary to shore up the market.
Enter Donald Trump.
The US president on Tuesday proclaimed his political support for OPEC kingpin Saudi Arabia, highlighting its efforts to keep “oil prices at reasonable levels” by boosting production ahead of the reimposition of US sanctions on Iran. Saudi Arabia’s desire to placate Trump in the fallout from the killing of journalist Jamal Khashoggi may box in the kingdom, despite Falih’s warnings of a potential oil supply glut in the months ahead that could crash prices further.
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“One thing OPEC was working on was having clarity, showing they would stick to their policies,” said Helima Croft, global head of commodity strategy with RBC. “Donald Trump’s interventions make things more erratic and are causing them to have faster reversals of policy.” Saudi Arabia’s energy ministry could not be reached for comment after hours.
There are still more than two weeks — plenty of time for more oil price gyrations — until OPEC and its allies meet December 6-7 in Vienna to determine output policy, and ministers are still in wait-and-see mode as they begin bilateral back-channel discussions ahead of the summit.
OPEC delegates have privately complained that Trump’s Twitter outbursts and political pressure have complicated their work to keep the oil market balanced.
The White House’s announcement November 5 that it was granting sanctions waivers to eight countries to continue purchasing Iranian oil wrong-footed OPEC, Gulf delegates told S&P Global Platts on condition of anonymity, after Trump had emphatically said in the run-up that he aimed to bring Iran’s oil sales down to zero. The delegates added that they were given no advance warning of the waivers and feel betrayed by the decision. Given the nature of oil production, OPEC and its allies can not open and shut their taps at will to respond instantaneously to the fast-moving price changes, unplanned disruptions and geopolitical developments.
That will keep producers forever chasing market sentiment, even as they try to manage trader expectations with their messaging, said Ed Morse, global head of commodities research at Citi Group. “The trading community and money managers are far more adept at implementing a change in views than officials are,” he said. “OPEC+ is in quest to stabilize prices but in a way the very act of trying to stabilize markets is also responsible for big shifts in prices.”
Crude was already slumping when a key OPEC/non-OPEC monitoring committee met in Abu Dhabi on November 11 to lay the groundwork for a potential 2019 production cut. Having talked up OPEC’s role as the “central bank of oil” and wanting to signal to the financial community that the producer bloc would act decisively to head off the looming oversupply, Falih and close ally UAE energy minister Suhail al-Mazrouei told reporters that the 1 million b/d output increase agreed in June would be ending.