FxWirePro: Oil price trapped between OPEC’ put and Trump’s call

Oil would very likely to continue its struggle as it remains trapped between OPEC’s floor and Trump’s ceiling.

• To avoid lower oil price OPEC and non-OPEC countries led by Russia agreed to reduce production beginning January to the tune of 1.2 million barrels per day.
• According to OPEC’s monthly report, the organization is very close to achieving full compliance with the agreement, as Saudi Arabia, and the United Arab Emirates reduced production by more than their quota.
• OPEC members do not want to see oil price declined below $50 per barrel.

On the other hand,

• President Trump once again showed that he remains ready to counter OPEC’s put, with his own ceiling.
• As the price of Brent approached $70 per barrel, President Trump took to Twitter to lash at higher prices, “Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile!”
• That one tweet pushed the oil price down by more than 3 percent yesterday.

So, who wins?

• Guess is that the ongoing supply/demand balance would dictate the oil price going ahead.
• If OPEC continues to reduce production, the price might move higher as the oil market remains in backwardation, where cash price is higher than the forward and future price.
• However, increasing oil production in the United States amid President Trump’s threat against a higher price should keep it checked below $70 per barrel area (Brent).
• The possibility of a trade agreement between the United States and China should act as a positive catalyst for the crude.

WTI is currently trading at $55.3 per barrel and Brent at $9.5 per barrel premium.