With Donald Trump winning the U.S. presidential election, energy expert Daniel Yergin has tempered his belief that OPEC will almost certainly move to freeze or cut oil production at its Nov. 30 summit in Vienna - a move Yergin expected to stabilize oil prices at a $50 floor. A failure to come to an agreement, he said in a Sept. 29 interview, would lead to oil prices in the $40s and a loss of face for the oil cartel.
One reason for pessimism about a Nov. 30 deal: The 14-member Organization of Petroleum Exporting Countries faces the prospect of increased U.S. oil output under President Trump, who has promised to remove oil industry regulations, open federal land and waters to oil and gas drilling, make the U.S. completely energy independent and double U.S. economic growth.
But how much an OPEC production freeze matters is no longer clear, given Trump’s vocal support for the U.S. oil industry and his pledge to revoke the nuclear deal with Iran, an accord that has allowed Tehran to dump upwards of 3.5 million barrels a day on the world market.
Although the Obama administration said it will remain committed to the Iran deal through its final months, Commerzbank, among others, said in a note following the election that if Trump revokes the accord, “oil prices would presumably rise.”
Renewed sanctions on oil exports from Iran would most certainly leave room in the market for increased output from the U.S., the world’s third largest oil producer behind OPEC leader Saudi Arabia and non-OPEC member Russia.
“Trump has vowed to lead a fossil-fuel revival to underpin job growth and has also put manmade climate change denial at the forefront of his energy policy,” JBC Energy analysts said in a note Reuters reported on Nov. 9 - actions that would likely increase U.S. oil production.
The election results could compound the supply-side headwinds that oil producers face with demand concerns, said Yergin, vice chairman of analysis firm IHS Markit, Reuters reported Nov. 9.
“Buckle up your seatbelts for a more turbulent and uncertain global economy that is ahead,” Yergin told the news agency.
“The outcome of the U.S. election adds to the challenges for the 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,” he said.
BP’s Dudley: oil supply, demand balanced
BP Group Chief Executive Bob Dudley discussed the outlook for oil with Bloomberg two days before the U.S. presidential election. Claiming no special information on whether OPEC would or would not cut a deal, Dudley’s assessment of the oil market has been voiced by other oil company heads and energy analysts, some of whom are skeptical of an OPEC freeze or cut arising from the Nov. 30 meeting.
Dudley thinks oil supply and demand are already “generally” in balance; “it’s just waiting until the stocks drain out.”
“I think we could easily see $55 next year,” he said.
“I think we’re pretty much, on a daily basis, in balance right now within a few hundred thousand barrels a day,” Dudley said.
EIA, OPEC forecasts prior to election
In its short-term energy outlook on Nov. 8, the U.S. Energy Information Administration said it expects Brent crude oil prices to average close to $48 a barrel in the fourth quarter and in the first quarter of next year. EIA forecast a Brent price average of $43 a barrel in 2016 and $51 a barrel in 2017.
West Texas Intermediate crude oil prices are forecast to average about $1 a barrel less than Brent prices in 2017.
Prior to the U.S. election, OPEC warned in its recent annual report that oil prices might not rise above $60 per barrel until the end of the decade, in an acknowledgement that an array of bearish forces will combine to keep a lid on a price rally.
OPEC’s new World Oil Outlook estimates the price will rise by $5 per barrel each year through the rest of the decade, taking prices up to $60 per barrel in 2020. Last year’s OPEC report predicted an $80 per barrel price by 2020.
Trump’s impact on OPEC deal uncertain
In an attempt to boost prices, OPEC agreed in late September to cut output, although analyst doubts had increased prior to the election that the cartel would be able to implement the deal at its next meeting on Nov. 30.
Trump’s victory “subtly shifts the balance of power in the oil market,” analysts at Esai Energy LLC said in a note Nov. 9.
“A Trump presidency that is pro-business will encourage oil development, permit pipelines, reduce corporate profit taxes and generally make U.S. oil more competitive,” they said.
Weakening oil prices may appear to “encourage an OPEC deal,” but that might not be the case, Market Watch reported Nov. 9.
If OPEC were to cut back on production and raise oil prices, that would “only strengthen the U.S. oil sector, intensifying competition with an industry that now has the full backing of the president and a Republican Congress,” said the Esai Energy analysts.
“This means if a good OPEC deal is unreachable, the Saudis are more likely to walk away, under the pretense of taking a ‘wait and see’ attitude regarding the new president, while continuing to keep the pressure on U.S. shale,” they said.
About 52 percent of total U.S. crude oil production, or 4.9 million barrels a day, came from tight oil in 2015, according to EIA.
S&P Global Platts said OPEC’s member output hit a record 33.54 million barrels a day in October.
OPEC has kept oil production levels high, which has prevented non-OPEC producers such as the U.S., where oil costs more to produce, from increasing their share of the market.
