Trump Snub Causes Modest Crude Price Gains

But J.P. Morgan sees prices eventually plummeting to $60 per barrel: File Image/Pixabay

U.S. president Donald Trump once again made headlines in the energy sector on Monday, but not because of any tweets; instead, in response to his earlier demands that the Organization of the Petroleum Exporting Countries (OPEC) open up the taps and send oil prices lower, the cartel signaled that it may in fact extend its cutback policy.

Khalid al-Falih, energy minister for Saudi Arabia, justified his opposition to the brash billionaire by warning that global crude stockpiles are rising - an argument, incidentally, that is refuted by a good portion of the analytical community focused on production losses from Iran, Venezuela, and other locales.

He remarked, "On the one hand, there is a lot of concern - and we acknowledge it - about disruptions and sanctions and supply interruptions.

"But on the other hand, we see inventories rising; we see plentiful supply around the world ... which means we think, all in all, we should be in a comfortable situation in the weeks and months to come."

Al-Falih's position was supported by OPEC's Joint Ministerial Monitoring Committee but concluded its members needed more information before deciding whether to keep the output curbs in place.

It's unclear to what extent the notion of OPEC extending its cuts can be trusted, especially given that sources told Reuters the cartel is also considering reducing the cuts from 1.2 million barrels per day (bpd) to about 900,000 bpd, in order to provide relief to oil buyers.

Still, OPEC's seeming defiance of Trump was enough to cause traders on Monday to give U.S. crude prices a modest boost: West Texas Intermediate settled 34 cents higher at $63.10 per barrel, while Brent fell 24 cents to $71.97 per barrel barrel.

The fact that trading in 2019 has so far consisted overall of modest gains and losses based largely on sentiment was not lost on Scott Darling, head of Asia Pacific oil and gas research for J.P. Morgan: on Monday he pointed out that "It's alright to talk about supply-side risks, but that's sort of near-term ... I don't think expectations for oil prices have actually gone up" due to the rise of U.S. shale energy and slowing demand due to global economic uncertainties.

Darling predicted that Brent will reach $75 per barrel by the end of the second quarter of this year, but for the full year it will average $71 per barrel and weaken to $60 per barrel from 2021 - a forecast that if proven accurate will please Washington.