Futures prices are still suffering from a severe hangover caused by October’s high production, which was supposed to be in preparation for coping with US sanctions on Iran. Instead, the US issued waivers to Iran’s biggest customers and the tight oil market never happened.
That contributed to a drop in the price of Brent crude by almost $27 in just two months — one of the steepest declines in history, except for during the 2008 financial crisis. Gloomy scenarios are now the norm.
Analysts have discarded the forecasts they put out in early October and have dramatically lowered estimates for future oil demand and prices. While Brent was once projected to hit $85 or higher in 2019, new forecasts put prices at no more than $75.
The US President Donald Trump’s tweets calling for lower oil prices have been popular with his supporters, who delight in low gasoline prices. However, the US shale producers cannot thrive in a low-price environment. Texas, North Dakota, Colorado
The symbiotic collaboration that Saudi and Russian leaders made during the 2016 G20 meeting in Beijing shows what the path forward should be. At that meeting, a joint statement of cooperation was released after a meeting between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman. Later negotiations between a group of producers resulted in an agreement to cut production by 1.8 million barrels per day (
Any new cuts will not have to be so dramatic. Most analysts think that a supply drop of 1 million
Prior to the recent G20 summit, Russian President Vladimir Putin praised the role of Saudi Arabia in stabilizing world oil markets. This is setting the stage for
That collaboration could take several forms. With oil prices under pressure, supplies surging and inventories building, an output cut may be considered. Or there might be a “wait and see” attitude to understand how markets react to the current supply level, once the influence of speculators has diminished. US supply growth will also have a role to play in the final equation.
Oil price movements are not a reaction to Trump’s tweets, but to market developments. It comes down to market economics and the willingness of OPEC+ to work together to stabilize the global economy.