Breaking News
Investing Pro 0
Black Friday SALE: Up to 54% OFF InvestingPro+ CLAIM OFFER

Trump’s Dream of Cheap Oil Might Still Come True

Stock Markets Feb 10, 2019 02:10AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. Trump’s Dream of Cheap Oil Might Still Come True

(Bloomberg Opinion) -- As winter keeps its grip on the northern hemisphere it is the oil bulls, not the bears, who have gone into hibernation. The price rally that greeted the new year has fizzled out as renewed concerns about demand growth outweigh the tightening of oil supply through OPEC cuts and U.S. sanctions.

Saudi Arabia had already started to deliver on its promised output reductions in December and went beyond what was pledged in January. U.S. production growth has stalled — for now — and President Donald Trump’s sanctions on oil flows from a second OPEC producer (Venezuela joins Iran on the naughty step) will cut supplies even further.

The flow of OPEC crude to the U.S. fell to the lowest in five years in January, according to data from the cargo-tracking and intelligence company Kpler. Bloomberg’s own tanker tracking shows the flow of crude from the Persian Gulf to the U.S. last month was 36 percent lower than in December and almost 60 percent lower than in August.

Those flows matter, not because the Americans are OPEC’s biggest customer — they aren’t — but because the U.S. market is still the most transparent. Official weekly data on the country’s oil production, consumption, refining, stockpiles and trade flows are watched keenly by traders and policymakers. Those indicators drive sentiment.

That’s why Saudi Arabia decided to focus its output cuts on the U.S. in the middle of 2017 and has done so again now. While the kingdom’s crude shipments were cut by 10 percent between November and January, flows to the U.S. were slashed by 46 percent, taking them to the lowest level since OPEC and other oil producers began the last round of supply reductions at the start of 2017.

U.S. production growth is also expected to slow significantly in 2019. Output rose by about 1.8 million barrels a day between December 2017 and December 2018, almost three times the increase that was expected at the start of last year. This year, it’s expected to rise by just 520,000 barrels a day. The slowdown in U.S. output growth might be seen as bullish for crude — so long as you believe the Department of Energy has got its forecast right this time.

And then there’s Venezuela. Sanctions on its oil exports, and on the sale to the country of the diluent needed to let its extra-heavy crude flow through pipelines, have had an instant impact. The country is now diverting some of its own light crude from export markets to mix it with the extra-heavy oil in an attempt to keep producing.

And things are going to get worse for Venezuela’s oil sector. The sanctions will hasten the decline in output and even if there’s a swift transition of power, which looks unlikely, it will be months before production is restored. Infrastructure is crumbling, the state oil company has lost much of its technical staff, and an interim government will struggle to enact promised changes.

The problem for bulls is that while oil supply has clearly tightened, demand is starting to look weaker again. Hopes of a breakthrough in U.S.-China trade talks were knocked back after Trump said he wouldn’t meet President Xi Jinping before a March 1 deadline to avert higher tariffs on Chinese goods.

Meanwhile, the European Commission has slashed growth forecasts for the euro area’s big economies and warned that Brexit and the slowdown in China threaten to make things even worse. That might start to weigh on oil demand forecasts, which have remained relatively robust.

Last month, the International Energy Agency cited “average prices being below year-ago levels” as the main reason it saw demand growth holding up. We’ll have to wait for its next forecast on Wednesday to see whether it still thinks that’s the case. Oil prices have been flat for a month, which should be positive for demand, but the weakening economy is negative. And if the oil bulls do emerge from their January slumber, and start pushing up prices, they might just choke off that demand.

Trump’s Dream of Cheap Oil Might Still Come True

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email