Oil prices fell again after a strong start to this year. US President Donald Trump urged the largest oil producers in the world to reduce prices.
The Joint Ministerial Monitoring Committee of the Organization of the Petroleum Exporting Countries is meeting next week.
Since mid-January the oil prices have dropped significantly. The price of Brent crude has fallen by nearly $7 per barrel.
The current Brent crude oil price is just $76 a barrel. This marks a significant shift on the oil market.
The recent drop in prices can be explained by a number of factors including global changes to supply and demand, economic and geopolitical conditions.
The market is expecting a response from OPEC+ in relation to Trump’s request for lowering the oil price.
Trump’s remarks have an impact on the oil price
Donald Trump, the US president, said on January 23 that he would pressure Saudi Arabia and OPEC for a reduction in oil prices.
Trump addressed OPEC leaders and world leaders gathered at Davos, Switzerland on Thursday.
He called on Gulf countries to reduce oil prices and said that it could help end the Russian conflict in Ukraine.
Trump said at the World Economic Forum Davos in Switzerland:
The war between Russia and Ukraine would be over immediately if the oil price dropped. The price of oil is too high to stop the war.
They should have done this long ago. “They’re responsible for what is happening, in a way,” Trump said.
Despite the fact that there are no official announcements from OPEC, many media reports have stated that Trump has had telephone conversations with a number of OPEC officials, including Saudi Arabia’s top officials.
The reports indicate that President Obama may have been trying to influence OPEC’s decision making process in regards to oil production and price, possibly to achieve stable and affordable prices of oil for the world market.
The specific contents and results of these discussions remain secret, leaving space for speculations and uncertainties regarding their potential impact on the future OPEC policy and the oil market.
Price war possible?
There was also some market talk about a potential price war between OPEC and the US.
The flattening forward curve is less indicative that US President Trump’s appeal to OPEC has been received well. Carsten Fritsch is a commodity analyst with Commerzbank AG.
It is questionable if Trump can find a way to pressure Saudi Arabia.
OPEC+ has a huge oil production spare capacity and plans to increase oil output starting in April.
Analysts are still skeptical about a possible price war among major producers. They note that a scenario of oversupply could push Brent crude below $50, if spare capacities were aggressively used, Arslan Ali said.
This time, the OPEC+ Joint Ministerial Monitoring Committee will attract particular attention.
The committee is not an official decision-making group, but its recommendations are still considered important.
Reversing steep production cuts
Like we mentioned earlier, OPEC+ has a huge spare capacity for crude oil production.
The cartel will likely increase production in April and undo some of its voluntary cuts, which could further depress prices.
The International Energy Agency predicted that there would be a 750,000 barrels a day oversupply on the market this year.
Barbara Lambrecht, commodity expert at Commerzbank AG stated that “concrete reactions to Trump’s call are not expected.”
She said that “However the JMMC can point out that voluntary cuts made by eight countries totalling 2,2 million barrels of oil per day will be phased-out anyway in April, and production will rise as a result.”
OPEC can “cleverly”, get out of the mess.
Libya overproducing
OPEC+ faces increasing challenges from individual countries such as Kazakhstan who have increased their production capacities and will likely advocate for higher quotas.
According to Commerzbank, the new production estimate based on survey data may reveal that Libya, a member of OPEC exempted from quotas because of civil war, reached a record production.
We expect oil prices to continue falling, particularly in light of the relatively abundant supply. Lambrecht added that the US could also cause trouble if Trump changed his mind about sanctions and tried to use them to make Russia back down.
It will also be crucial to see if Trump imposes import tariffs for crude oil coming from Canada or Mexico. This decision is near.
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