Oil fell as the market’s focus shifted from the shock of Donald Trump’s US presidential election victory to questions about Opec’s ability to rebalance crude supply and demand.
Futures declined as much as 1.9 per cent in New York, erasing earlier gains after the International Energy Agency said prices may retreat amid “relentless global supply growth” unless the Organization of Petroleum Exporting Countries enacts significant output cuts. The dollar rose to an eight-month high against its peers amid increased inflation expectations, putting downward pressure on commodities priced in the currency.
Traders are weighing the implications of a Republican again presiding over the nation that consumes more oil than any other — and is one of the biggest producers too. Trump has promised freedom from Opec and some of his energy policies include opening federal lands to drilling and freeing up offshore areas to development. While investors took comfort from a conciliatory acceptance speech on Wednesday, surging US crude supplies served as a reminder of the massive global glut, which the IEA said could persist through 2017.
“The IEA report showed that OPEC production has climbed to a new high, which is cause for concern,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “When we thought they were about to put their foot on the break, they were actually putting their foot on the accelerator.”
West Texas Intermediate for December delivery fell 63 cents, or 1.4 per cent, to $44.64 a barrel at 11:37 am on the New York Mercantile Exchange. Prices closed up 0.6 per cent on Wednesday, erasing an earlier 4.3 per cent slide as Trump’s pledge to unite divided political factions prompted a reversal in the knee-jerk sell-off. Aggregate trading volume on Nymex showed 1.768 million contracts changing hands, according to updated data on Thursday.
Brent for January settlement slipped 58 cents, or 1.3 per cent, to $45.78 a barrel on the London-based ICE Futures Europe exchange, trading at a 45-cent premium to January WTI. The global benchmark crude rose 0.7 per cent to $46.36 on Wednesday.
“The Trump election is extremely bullish for energy and infrastructure companies,” said Jay Hatfield, the New York-based portfolio manager of the InfraCap MLP ETF with $125-million in assets. “It’s not irrational to expect the companies to be higher, while the commodity itself is lower, at least in the short term.”
The next test for the oil market is whether OPEC can finalise an agreement to curb production at an official meeting on November 30. Iranian Oil Minister Bijan Namdar Zanganeh is optimistic an accord will be reached when members meet in Vienna, the Oil Ministry’s news agency Shana reported.
It’s still too early to tell what impact a Trump presidency could have on the nuclear deal that enabled a resurgence in Iranian production, said Eni SpA Chief Executive Officer Claudio Descalzi.
“Prices could fall to $40 or perhaps a little bit lower, especially in the absence of a deal” by Opec, Abhishek Deshpande, an analyst at Natixis SA, said in a Bloomberg Television interview. While President-Elect Trump may take measures to support the American oil industry, “US production rising is only going to put further pressure on oil prices,” Deshpande said.
Non-Opec producers such as Brazil, Canada, Kazakhstan and Russia will raise output by 500,000 barrels a day in 2017, the IEA said in its monthly report. That presents a challenge for Opec, whose own output has also been increasing. While the market would move from surplus to deficit quickly in 2017 if Opec implements its Algiers accord, the group will need to agree to “significant cuts,” the IEA said.
US crude inventories rose by 2.43 million barrels last week to 485 million, according to an Energy Information Administration report on Wednesday. The nation pumped 8.69 million barrels a day in the week ended November 4, the most since June.
OPEC faces increasing urgency to take measures that will support oil prices as Trump’s surprise victory threatens to deepen a market sell-off, according to UBS Group AG.
TransCanada Corp. is fully committed to building the Keystone XL oil pipeline and is looking at ways to engage with the Trump administration, according to a statement.
US shale producers are achieving productivity gains of as much as 30 per cent a year, according to BP Plc, while Rystad Energy said there’s huge potential for output growth. Bloomberg
