OPEC was already struggling to finalise a deal on production cuts this month. And then Donald Trump was elected President of the US.
The Organization of Petroleum Exporting Countries faces increasing urgency to take measures that will support oil prices as Trump’s surprise victory threatens to deepen a market sell-off, said UBS Group. Yet the uncertainty arising from the President-Elect’s policies — from climate change to the US shale industry and sanctions on Iran — will make resolving differences between producers even harder.
“The pressure on OPEC to come up with a deal only increases in the wake of Trump’s victory,” said Giovanni Staunovo, an analyst at UBS in Zurich. “Even though the oil market is rebalancing, the political uncertainty in the short term leaves oil prices vulnerable to downside, that makes it more urgent for OPEC to act.”
Oil prices had already retreated 15 per cent since late October on growing doubts that OPEC can finalise the Algiers accord at its 30 November meeting while almost a third of its members refuse to lower their output. Crude prices initially slumped to near $43 a barrel in New York on Wednesday after Trump, a real-estate mogul and reality television star, was elected, but later erased losses as a global selloff of risky assets abated.
The result is “bearish for the emerging markets, which drive oil-demand growth” because Trump has vowed to scrap international trade agreements in Latin America and Asia, according to consultant FGE. His surprise win could also weaken prices by aiding a revival in U.S. shale oil production. Harold Hamm, the chief executive officer of Continental Resources Inc. who has advised Trump on energy policy, is “solidly pro-domestic oil and gas development,” FGE said.
Trump’s various policy positions could either support or weaken oil prices, making it more complicated for OPEC to conclude a deal, said David Hufton, chief executive officer of brokers PVM Group in London.
The next US president is likely to treat climate change agreements “skeptically” and moves towards limiting carbon dioxide output are “likely to slow or reverse,” potentially boosting demand for fossil fuels, according to FGE. Trump has also said he would undo last year’s nuclear accord with Iran, potentially reversing increases in the Islamic Republic’s oil exports, said RBC Capital Markets.
Equally, Trump’s election may have little impact on either the market or OPEC’s negotiations, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London. The new president won’t take office until January, and any new policies will first need to be approved by Congress, he said.
“The pressure to reach a deal was there ahead of the US presidential election,” Tchilinguirian said. “The outcome of the race doesn’t change that.”
OPEC aims to finalise how much each member should reduce output after agreeing in principle to a joint cut to between 32.5 million and 33 million barrels a day in September. The accord already faced a number of hurdles, with key producers including Iran and Iraq arguing they should be exempt because of their production losses in recent years from war and sanctions. Both have disputed the output estimates OPEC intends to use as the basis for any accord.
The complications only increase with Trump on the way to the White House, according to PVM’s Hufton.
“There’s a bit of fog coming down — it just adds a bit more uncertainty, for OPEC and everybody else,” Hufton said.
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