Times article on OPEC1 Dec 2018 11:36
Oil producers in the Opec cartel must “walk a tightrope” in talks next week to bolster falling prices without enraging President Trump, a leading analyst has warned.
Failure to agree curbs on production could trigger a “sharp sell-off” that would send Brent crude prices tumbling to $50 a barrel, Helima Croft, at RBC Capital Markets, said.
Mr Trump, who has called for lower prices, would be “the elephant in the room” during the cartel’s talks in Vienna next week as its members, including Saudi Arabia, seek to avoid provoking him, she said.
Brent crude, the global benchmark oil price, rallied to a four-year high of $86 a barrel in early October amid fears of the impact of US sanctions on Iran and a tightening market. It has since plunged to less than $60 a barrel after Mr Trump offered sanctions waivers to some key customers of Iran and fears grew over falling emand.
Brent crude fell by about 1.5 per cent to $58.65 a barrel last night. The Opec cartel, which pumps about a third of the world’s oil, will meet on Thursday to decide whether to reduce its output to help to bolster prices and support the economies of its oil-dependent members.
Mr Trump had used Twitter to lambast Opec over high prices. However, last week he thanked Saudi Arabia for lower prices and defended the kingdom amid an international outcry over the killing of Jamal Khashoggi, the journalist.
Ms Croft predicted that Opec would agree a production cut, but said that Opec was likely to try to “finesse the language” of any announcement to avoid “a Trump Twitter storm”.
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“They have to walk a tightrope between signalling strong resolve to balance the market and convincing President Trump they are not entirely acting against his interests,” she said.
“The worst situation for Opec would be if somehow they can’t get an agreement, or President Trump at the last minute convinces the Saudi crown prince not to go forward with the production cuts. Then you could have a really sharp sell-off. You could be down $10.”
On the other hand, a cut of between a million and 1.5 million barrels per day could help to get Brent prices back to between $70 and $75 a barrel by next year, she said.
Ann-Louise Hittle, at Wood Mackenzie, the oil industry consultancy, said that it was assuming that “Opec cuts production moderately in order to prevent a large oversupply in 2019”. A production cut should help to stabilise prices, while a clear commitment to cut by a million barrels per day should lead to prices rising by “several dollars a barrel”.
“President Trump has put pressure on Opec and Saudi Arabia to lower oil prices,” she said. “That goal has been achieved and the question is: are prices low enough that stabilisation of prices at this level or a moderate increase would be acceptable to President Trump?”
CME Group, the commodities exchange, said that its “Opecwatch” tool was predicting that Opec would “make little or no change”.
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