OPEC’s ‘fantastic’ cuts fail to lift oil as market frets over Trump
Policies could hurt growth
The protectionist trade CALGARY policies floated by U.S. President Donald Trump could have farreaching impacts on international commodity markets amid a weakening oil demand outlook, analysts warned Monday.
A report from Bank of America Merrill Lynch said that, despite a recent uplift in global oil markets in U.S. dollar terms, “oil prices in local currency are approaching 2014 levels and EM (emerging market) demand growth, the bastion of world oil demand, could suffer.”
“Moreover, a sharp downturn in trade due to U.S. and U.K. protectionism is a key risk to the world economy,” analysts at the bank said.
The comments come as Trump kicked off his first days as president with moves aimed at shredding globalist trade policies that were signed under former U.S. president Barack Obama.
On his first working day in office Monday, Trump formally pulled the U.S. out of the Trans-Pacific Partnership, a trade agreement between 12 nations including Canada.
Some observers called the move symbolic, though it underscores Trump’s broader plan to implement a more inward-looking approach to global trade.
Such policies could lead to increased uncertainty in global oil markets, the Band of America Merrill Lynch analysts said, as the “already sluggish global trade sector could be a victim of a shift away from international to local politics.”
Brent crude prices declined by one per cent to US$55.23 per barrel, with U.S. crude futures ending the day at US$52.75, down 0.9 per cent.
This occurred despite a Organization of the Petroleum Exporting Countries meeting in Vienna over the weekend at which the group’s oil ministers highlighted progress on the 1.2 million bpd of cuts pledged in November.
“Compliance is great — it’s been really fantastic,” Saudi Arabia’s Minister of Energy and Industry Khalid Al-Falih told reporters in Vienna.
“Based on everything I know, I think it’s been one of the best agreements we’ve had for a long time.”
Firmer data on OPEC production will be delayed by a few months.
The new production quotas were implemented at the beginning of 2017.
But Trump’s rhetoric on trade, coupled with a strong U.S. dollar, could introduce new worries around demand, even as most analyst forecasts see crude prices rising gradually through 2017.
In addition, shale production in the United States will continue to rise “marginally” in 2017, the International Energy Agency executive director Fatih Birol told reporters in Davos last week, as more developments become economically viable in the US$50 to US$55 per barrel range.
Some analysts have moderately trimmed their predictions for crude oil prices as a result. Calgary-based FirstEnergy GMP analyst Martin King estimated in his most recent report that prices for West Texas Intermediate crude would average US$58 in 2017, down from an earlier estimate of US$60.
U.S. tight oil production growth will mostly be focused on the Permian basin, located in western Texas and New Mexico.
Analysts at Barclays said in a recent research note that the number of new wells in the basin could grow by as much as 30 per cent compared to 2016.