Bloomberg Opinion: The oil price is now controlled by just three men
NEW YORK CITY (Bloomberg) -- OPEC has lost what control of the oil market it ever had. The actions (or tweets) of three men — Presidents Donald Trump and Vladimir Putin and Crown Prince Mohammed Bin Salman — will determine the course of oil prices in 2019 and beyond. But of course they each want different things.
While OPEC struggles to find common purpose, the U.S., Russia and Saudi Arabia dominate global supply. Together they produce more oil than the 15 members of OPEC. All three are pumping at record rates and each could raise output again next year, although they may not all choose to do so.
It was Saudi Arabia and Russia that led the push in June for the OPEC+ group to relax output restraints that had been in place since the start of 2017. Both subsequently jacked up production to record, or near record, levels. U.S. output soared unexpectedly at the same time, as companies pumping from the Permian basin in Texas overcame pipeline bottlenecks to move their oil to the Gulf coast.
These increases, alongside smaller downward revisions to demand growth forecasts and President Trump’s decision to grant sanctions waivers to buyers of Iranian oil, have flipped market sentiment from fears of a supply shortage to concerns about a glut in the space of three months. Oil stockpiles in the developed nations of the OECD, which had been falling since early 2017, are rising again and are likely to exceed their five-year average level when October data are finalized, according to the International Energy Agency.
As oil prices have headed south, Saudi Arabia said it would cut exports by 500,000 bopd next month and warned fellow producers that they needed to cut about 1 MMbpd from October production levels. That drew a lukewarm response from Putin and swift Twitter rebuke from Trump.
Bin Salman needs oil revenue to fund his ambitious plans to transform Saudi Arabia, while avoiding unrest from those hurt in the process. The International Monetary Fund forecasts that the kingdom will need an oil price of $73.3/bbl next year to balance its fiscal budget. Brent crude is trading about $5 below that, with Saudi Arabia’s exports trading at a discount to the North Sea benchmark. Prolonging output cuts for a third year is the only way he can realize the price he needs.
He will face more challenges from Putin and Trump. The Russian president shows no great enthusiasm for restricting his country’s production again. Moscow’s budget is much less dependent on oil prices than it was when Russia agreed to join OPEC-led efforts to re-balance the oil market in 2016 and the country’s oil companies want to produce from the fields where they have invested.
Putin may yet decide that maintaining his improved political relationship with MBS, as the Crown Prince is known, is worth a small sacrifice. But it’s not a foregone conclusion that Russia will agree to extend output cuts when producers gather in Vienna next month. Putin says oil prices of around $70/bbl suit him “completely.”
The opposition from Trump will — naturally — be much louder and comes at a time when he and MBS are trying to preserve their political relationship, while American senators consider harsher sanctions on Saudi Arabia in response to the war in Yemen and the killing of dissident journalist Jamal Khashoggi.
A bigger U.S. threat to Saudi plans than Trump’s tweets will come from the Texas oil patch. American producers have added a volume equivalent to the entire output of OPEC’s Nigeria in the past 12 months.
2Th_2:7 For the mystery of iniquity doth already work: only he who now letteth will let, until he be taken out of the way.
Dan_11:44 But tidings out of the east and out of the north shall trouble him: therefore he shall go forth with great fury to destroy, and utterly to make away many.
Rev_18:3 For all nations have drunk of the wine of the wrath of her fornication, and the kings of the earth have committed fornication with her, and the merchants of the earth are waxed rich through the abundance of her delicacies.
Rev_18:11 And the merchants of the earth shall weep and mourn over her; for no man buyeth their merchandise any more:
Rev_18:15 The merchants of these things, which were made rich by her, shall stand afar off for the fear of her torment, weeping and wailing,
Rev_18:23 And the light of a candle shall shine no more at all in thee; and the voice of the bridegroom and of the bride shall be heard no more at all in thee: for thy merchants were the great men of the earth; for by thy sorceries were all nations deceived.
Rev 13:3 And I saw one of his heads as it were wounded to death; and his deadly wound was healed: and all the world wondered after the beast.