Crude Trades Flat, But Trump Effect May Lead to Lower Prices

Monday April 29, 2019

Although media described the crude market on Monday as having shaken off U.S. president Donald Trump's renewed complaint last week of high oil prices and his vow to reverse them, trading proved to be flat, with West Texas Intermediate ending Monday's session 20 cents higher at $63.50 per barrel, and Brent falling 11 cents to $72.04 per barrel.

Still, Jim Ritterbusch, president of Ritterbusch and Associates, expressed hope that crude would climb soon, pointing out that "This obvious effort to push gasoline prices down has been attempted previously by Trump and while forcing an initial price decline, such pullbacks have been followed by fresh price highs, sometimes within a matter of days."

As for the actual health of crude inventories, which analysts of late have insisted is fine despite fears of loss of product from places like Venezuela, Iran, and LibyaOle Hansen, analyst for Saxo Bank,  told Reuters, "We are dealing with a market that's not actually short of supply but is short due to politically-motivated action, and we know how quickly that can be turned around if necessary."

Taking a similar calm view was ING bank, which on Monday stated, "We are of the view that Saudi Arabia will increase output as soon as May, something they were likely to do anyway in the lead up to summer; the kingdom could increase output by 500 million barrels per day and still be in compliance with the OPEC+ deal for the month of May" - a reference to the Organization of the Petroleum Exporting Countries' output cuts.

One key focus of attention for analysts of late has been Iran, their fear being that the U.S. sanctions against the Islamic republic will cause a market tightening and skyrocketing prices; however, their dismissal that the sanctions could lead to a positive political outcome was put into question over the weekend, when Javad Zarif expressed readiness to negotiate with the U.S. on the release of American prisoners in Iran.

Henry Rome, Iran analyst at political risk consultancy Eurasia Group, wrote that "The comments likely showed that Tehran's strident opposition to talking with the Trump administration is eroding," and his firm raised the probability of "limited talks" from 20 to 30 percent.

If all of this suggests the world could more easily be swimming in oil than being short of it, Blu Putnam, chief economist of CME Group, told Bloomberg that while OPEC and other elements currently conspire to keep a lid on output, "the long run paints a different picture: Russia may start expanding production again soon, [and] more oil will be forthcoming from the U.S. - although not immediately due to logistical constraints."

He concluded that the "short term price surge may have more to go, but don't forget the powerful long term opposing forces pointing to more supply and less demand."