Donald Trump’s election victory in the stock markets is positive, but the oil price is under pressure. And the next US president is also responsible for this.
For the oil price the initial situation could hardly be worse: over the currency side the black gold is braked by the strong rising dollar. The greenback recently accelerated its upward trend. This week, US banker Janet Yellen was able to see the interest increase at the next meeting on 14 December. Responsible for the rising dollar is above all the expectation of the investors that Donald Trump will put on an extensive economic stimulus program after his office on 20 January 2017. It would boost the economy vigorously and thus fuel inflation. This expectation pushes interest rates upwards and thus also the dollar.
Because of the pressure on oil prices, it is all the more important whether the Opec can agree at the meeting on 30 November in Vienna, which countries will take what share of the production cut. At the end of September in Algiers, the Opec decided to reduce the subsidy to 32.5 to 33.0 million barrels per day. Saudi Arabia had recently stressed that it was even the bottom line of the forecast. “To reach an upper limit of 32.5 million barrels will help drive the recovery and is in the interest of producers and consumers,” said Saudi Arabian energy minister Khalid Al-Falih.
As Opec’s support last rose to a record 33.6 million barrels per day, it would have to be cut by around one million barrels – a very difficult one. After all, many countries have already announced that they want to be excluded from the reduction. Iran wants to further increase its output of 3.9 million barrels. At the same time, Iraq needs higher revenues to drive the fight against the IS. And in Libya and Nigeria, production is recovering gradually, having previously fallen on the infrastructure due to attacks by militia.
The bottom line is that Saudi Arabia would have to shoulder the bulk of the possible reduction in funding. Or is it perhaps different? This will depend not least on Donald Trump. During the election campaign, he repeatedly criticized the end of the embargo against Iran. If Trump could make the agreement collapse, Iran’s funding would drop by about one million barrels per day. This means that the other Opec countries would not have to cut their production and the oil price could turn sharply upwards. “International oil companies will wait for Iran to see what Trump will do,” said Jason Bordoff, Head of the Center on Global Energy Policy at Columbia University. If Trump would actually tilt the deal, however, the hardliners in Iran before the presidential election in May would play vigorously into the hands.
Can the Opec agree?
But Trumps’ election victory makes it generally unlikely that Opec will reach its goal of funding reduction. Because the US fracking industry could use the opportunity to increase its production at the expense of Opec. This is exactly what Trump wants to do, because, unlike the Democratic Party, he relies heavily on fossil fuels such as oil and gas. If the Opec reduced the promotion, while the US fracking companies increased their, the Opec would be the loser.
According to an analysis by BMI Research, therefore, after the victory Trumps, the probability that the Opec will not agree at the end of November has risen from 25 percent to 45 percent. Should the Opec not agree on a deal, the oil price could slide again towards 40 dollars, according to the analysts of Goldman Sachs and Société Générale. “If there is no agreement, the fight for market shares begins again,” says Daniel Yergin, an analyst at the research company IHS.
Due to the rising dollar, the oil price could continue to weaken at short notice. If the Opec does not agree on a reduction in funding, pressure on prices is likely to increase. In addition, investors on the oil market will pay close attention to how Trump is going to comment on Iran in the coming weeks.