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The energy commodity markets have remained stable in this week, crude markets have thus far largely shrugged off the surprise victory of Donald J Trump and rightly (in this analyst’s opinion) focused on the outcome of the upcoming OPEC meeting.
Shifting expectations around the likelihood of OPEC reaching a deal could add or subtract 10%, or more, to spot prices from current levels. WTI crude prices are struggling at resistances of 45.93 to bid for more dips ahead of the U.S. EIA’s release of its weekly report on oil inventories at 15:30GMT today, analysts forecasts for an increase of 1.48 million barrels.
The supply disruptions have eased in recent months, as Libyan, Nigerian, and Canadian outages have faded.
Most recently, Libyan output has returned to a two-year high as the rehabilitation of the ports, infrastructure, and fields that started in the summer continues,
However, the bellicose campaign rhetoric surrounding the US participation in the 2015 P5+1 agreement with Iran and its cessation of its nuclear ambitions could roil markets if these were implemented.
This analyst sees the little rationale for such an abrupt departure from a policy that has yielded real benefits to world stability.
Moreover, there are abundant policy options beyond the P5+1 agreement that the new Administration could use. The renewal of the Iran Sanctions Act (1996) which is due to expire on 31 December 2106, would appear to be a more straightforward conduit rather than the complex process of extricating the US from the UN-related agreement that the P5+1 would entail, and would target those aspects of Iran’s international relations, e.g. Syria, that the Trump administration objects to, rather than opening the door to a potential restart of abandoned Iranian nuclear programmes.
Shifting expectations around the likelihood of OPEC reaching a deal could add or subtract 10%, or more, to spot prices from current levels.
The less the market believes OPEC can deliver a deal, the further prices will fall in the short run. The base case assumes that OPEC reaches an agreement to restrict supply at 33.3 mbd in 2017 and that prices would rally into year end.
We retain a forecast of $54/bbl on Brent and WTI for end Q4 as a result.
The crude oil markets will likely remain focused on OPEC developments in the coming weeks, more than the changing political landscape of Washington.
Of potentially more concern is the more hawkish view on Iran, which could surprise markets with a tighter balance, even if OPEC fails to deliver its agreement.
Domestically, policy changes could be far-reaching in terms of the ability of US oil producers to compete internationally, but the real impact is likely felt in 2018 or beyond, particularly for offshore field developments. Such domestic policy initiatives would likely pressure WTI pricing relative to Brent pricing in the coming quarters.
