OPEC+ Tapering Mechanisms Will Continue To Dictate Oil Prices
- Wall Street has expressed concerns that Donald Trump’s election could impact the supply of the world’s largest crude producer.
- Citi: another Trump presidency could be net-bearish for oil.
- Standard Chartered: OPEC+ policies are set to have a large impact on oil markets in the mid-term.
Oil markets witnessed choppy trading in Wednesday’s session, with Brent crude for January delivery plunging to $73.53 per barrel at $8.40 am ET before jumping to $75.91 per barrel at 11.00 am ET after Donald Trump defeated Kamala Harris to clinch leadership of the White House.
Wall Street has expressed concerns that Donald Trump’s election could impact the supply of the world’s largest crude producer, with Trump promising to make the U.S. more energy independent by ramping up oil and gas production.
Recently, Citi predicted that another Trump presidency “could be net bearish due to trade tariffs, oil-and-gas-friendly policies/deregulation, and pushing OPEC+ to release oil to the market."
However, commodity experts at Standard Chartered have predicted that actions by OPEC+ are likely to determine the near-and mid-term oil price trajectory. According to StanChart, much of the negative sentiment that has dominated oil markets over the past three months can be chalked up to misapprehensions about the tapering mechanism for the voluntary cuts made by eight OPEC+ countries. Many traders are worried that the balance of oil demand growth and non-OPEC+ supply growth might not offset the scale of restored OPEC+output, leaving oil markets oversupplied. However, the experts have pointed out that this assumption flies in the face of continued reassurances from OPEC+ members that the tapering would be fully dependent on market conditions rather than being automatic. Trader focus has been on the question of how many barrels could be returned before a surplus emerged; however, positioning and price dynamics imply that the answer to that question is zero. In a November 3 press release, OPEC announced that output increases would be postponed by a month until the start of 2025. StanChart says the delayed return of more barrels to the market does not necessarily mean that OPEC felt the physical market could not absorb the oil, but rather reflects its awareness that extremely pessimistic 2025 oil balance predictions have viewed the tapering through that lens. StanChart says the latest announcement by OPEC strengthens the case that the pace of tapering will be market-dependent and not automatic as traders fear. This realization is likely to have driven the latest oil price rally.