OPEC’s Job Now Tougher with Trump Win
$CVX, $XOM, $RDS.A, $BP, $TOT, $OIL
OPEC’s job of trying to prop up Crude Oil prices has just got much, much harder.
With Donald Trump winning the US Presidential election, the 14-country Crude Oil-producing cartel may have to battle a sourer outlook for the global economy and weaker demand for Crude Oil.
Also it faces the prospect of increased US Crude Oil output, a major headwind for the Organization of the Petroleum Exporting Countries given Donald Trump’s pledge to open all federal land and waters for fossil fuel exploration.
OPEC’s internal dynamic could change, with Donald Trump promising to tighten policies on Iran just as Crude Oil companies begin slowly to return to the Islamic Republic.
“Buckle up your seatbelts for a more turbulent and uncertain global economy that is ahead,” Pulitzer Prize-winning US Oil historian Daniel Yergin, vice-chairman of the IHS Markit think tank, told Reuters.
“The outcome of the US election adds to the challenges for the Crude Oil exporters because it will likely lead to weaker economic growth in an already fragile global economy. And that means additional pressure on oil demand,” Mr. Yergin said.
OPEC will meet on 30 November in an effort to curtail output and reduce the global oil glut that has seen prices more than halve since Y 2014.
OPEC sources said they expected Crude Oil to remain weak in the days and weeks ahead due to worries about the global economy and uncertainty about Trump Administration policies for the Middle East.
“Crude Oil is doomed,” one of the sources said.
A 2nd source said the OPEC meeting in November might fail to have a strong impact on prices even if it strikes a deal to limit output: “I don’t think prices will go up much more than the current levels.”
Donald Trump has promised to 2X US economic growth but also pledged protectionist trade policies.
“This will have huge negative implications for Asia, given how much their GDP is tied to trade with the US hence it is negative for growth and oil demand, at least due to the uncertainty that Trump creates,” said Amrita Sen, of the think tank Energy Aspects.
Donald Trump’s energy policies have been limited in detail so far.
But what he said will be seen as supportive for the share prices of US independent Oil & Gas producers as well as Oil majors with large exposure to the US shale industry such as Chevron (NYSE:CVX), ExxonMobil (NYSE:XOM) and Shell (NYSE:RDS.A).
“Trump has vowed to lead a fossil-fuel revival to underpin job growth and has also put man-made climate change denial at the forefront of his energy policy,” JBC Energy analysts said in a note.
Trump said he was in favor of removing Crude Oil-sector regulations, opening federal land to drilling, and vowed to revive a major trans-Canadian and Trans-US Oil pipeline project while pledging to support the coal industry.
The stocks of Oil majors BP (NYSE:BP) and Shell were down in line with the price of Crude, while France’s Total (NYSE:TOT) underperformed peers.
Earlier this week, Total signed a deal with Iran to help it develop a huge gas field, becoming the first Western energy company to ink a major deal with Tehran since the lifting of international sanctions this year.
Trump has criticized the West’s nuclear deal with Iran, adding to uncertainty and frustrating Tehran’s push for foreign investment to revive its economy.
An executive from an Oil major negotiating with Iran said that given Tehran wanted to repay investments slowly, maybe over 5 to 10 years, many Oil firms would take a slow approach in finalizing deals until Trump’s policies became clearer.
“It is a significant amount of money that will be put at risk should sanctions be brought back,” the executive said.
Thursday in the Oil Patch
- Dec WTI Crude Oil futures fell 0.57 (-1.3%) to 44.63 bbl
- The next official OPEC meeting will take place in Vienna, Austria on 30 November.
- Baker Hughes rig count data will be released Friday at 1:00p ET.
- Dec Nat Gas closed 0.06 lower (-2.2%) at 2.63 MBtu