Crude Prices Recover Amid "Worrying" Sentiment That Oil Market Will End in Five Years

Tuesday February 26, 2019

With sources from the Organization of the Petroleum Exporting Countries (OPEC) claiming they will continue to stick to their output cuts, thus resisting U.S. president Donald Trump's call for them to increase production (which in the previous session caused a crude price decline of over 3 percent), oil prices on Tuesday recovered - albeit extremely modestly.

West Texas Intermediate ended Tuesday's session by settling 2 cents higher at $55.50, while Brent rose 45 cents to $65.21 per barrel.

Phil Flynn, analyst at Price Futures Group, said, "The market has started to realize that Donald Trump can't tweet more oil out of the ground, or out of OPEC......OPEC really wants to get the supplies ... back in line."

The about-face of traders was fueled by an OPEC source on Tuesday telling media that the cartel will continue its supply cut agreement to balance the market until inventories fall to their five-year average: "There is no doubt we will continue with our reduction as planned."

While traders seemed satisfied that OPEC will defy a much maligned president, less important to them apparently is the question of just how effective OPEC will be in cutting supplies.

For his part, Jeffrey Currie, head of commodities research at Goldman Sachs, told Bloomberg television that OPEC was pursuing a "shock and awe" strategy of cutting deeply and rebalance the market quickly then returning to a market share strategy - and he predicted that the cartel could achieve market rebalance by as soon as April.

For the record, Currie also characterized global demand for crude as "rock solid" despite sentiment saying otherwise - which begged the question (unasked by Bloomberg) of whether the OPEC cutbacks were all that necessary.

Currie's portrayal of demand being healthy - which runs contrary to common analytical thinking - seemed to be supported by news on Tuesday from the American Petroleum Institute that U.S. crude stockpiles surprisingly decreased 4.2 million barrels last week, in contrast to analysts' predictions of a 3 million barrel increase.

But as far as a growing cadre of stakeholders are concerned, the machinations of Trump and OPEC as scrutinized by the analytical community could soon be moot: that's because, according to Amin Nasser, chief executive officer of Saudi Aramco, "There is a worrying and growing belief among policy makers and regulators, investment houses, NGOs, and many others that we are an industry with little or no future."

Speaking at the International Petroleum Week in London on Tuesday, Nasser went on to note that "Our stakeholders are clearly tuning out...the full extent was brought home to me when I was in Davos last month: one senior financial figure I spoke to confidently predicted the end of our industry in about five years."

Nasser, whose state-owned firm aims to to raise tens of billions of dollars from global capital markets in the next three years, added, "Important stakeholders believe that the entire world will soon run on anything… but oil.

"These views are not based on logic and facts, and are formed mostly in response to pressure and hype, but they are sincerely held - and our stakeholders are clearly tuning out."