Eni CEO Says Politics Are Driving Oil Prices as Brent Touches $71/b

by Ship & Bunker News Team
Thursday January 25, 2018

Although Brent on Thursday dropped 11 cents to $70.42 and West Texas Intermediate settled down 10 cents to $65.51 per barrel, the big trading news was that due to a weak U.S. dollar, Brent earlier in the day hit $71.28 and WTI rose to $66.66, both the highest prices since early December 2014.

Increasingly, credit is being given to financials for crude's remarkable rise in 2018: Carsten Fritsch, analyst at Commerzbank, stated, "The depreciation of the U.S. dollar is....allowing oil prices to make further gains; almost every commodity class is being driven up by this extended dollar fall."

Attention is also being paid to troubling fundamentals: Gene McGillian, director of market research at Tradition Energy (who also thinks crude's most recent gains are due to nothing more than a weak dollar), warned that rising product inventories in many countries is a potentially bearish signal.

While many analysts are wary of high crude prices because of their ability to trigger even more U.S. shale production at a time when the global market is still recovering from a glut of inventory, Patrick Pouyanne, chief executive of French oil giant Total, saw fit at the World Economic Forum in Davos, Switzerland, to credit the Organization of the Petroleum Exporting Countries (OPEC) for encouraging the high prices due to its crude cutback initiative, now in its second year.

He said, "Frankly this discipline has worked," but he added, "let's be clear: I think the market has also reacted, it's because of demand."

Meanwhile, Claudio Descalzi, chief executive of Italy's Eni, reminded media at Davos of the abiding worry in analytical circles that dwindling global supplies (which would presumably be contested by experts such as McGillian) coupled with a lack of investment in new fields makes oil prices more susceptible to geopolitical strife.

He theorized that a collapse in oil supplies in Venezuela, disruptions in Libya, and concerns over exports from Iran, have contributed to the current high prices and that "Today we no longer have an inventory cushion or a large spare capacity: we have a system which is very price sensitive and runs with no spare capacity.

"In this context, any geopolitical event can create a price spike."

Descalzi predicts oil demand will grow this year by as much as 1.5 million barrels per day (bpd) and inventories will drop by the end of 2018 to below multi-year averages, "and it won't be easy to push U.S. output higher at the same levels in 2019."

McGillian's bearish outlook, and not that of Descalzi, would presumably be assuaged by growing analytical conviction that OPEC will continue its cutbacks not just this year but into 2019 as it seeks to exit subtly from the strategy.