Oil Falls as Focus Returns to OPEC After Trump Election Surprise

Updated on
  • Crude reversed 4.3% intraday slide Wednesday on Republican win
  • ‘Relentless’ supply growth seen by IEA as non-OPEC recovers

Oil fell as the market’s focus shifted from Donald Trump’s unexpected U.S. presidential election victory to questions about OPEC’s ability to rebalance crude supply and demand.

Futures declined 1.3 percent in New York, erasing earlier gains after the International Energy Agency said prices may retreat amid “relentless global supply growth” unless the Organization of Petroleum Exporting Countries enacts significant output cuts. The dollar rose to an eight-month high against its peers amid increased inflation expectations, putting downward pressure on commodities priced in the currency.

Traders are weighing the implications of a Republican again presiding over the nation that consumes more oil than any other -- and is one of the biggest producers too. Trump has promised freedom from OPEC and some of his energy policies include opening federal lands to drilling and freeing up offshore areas to development. While investors took comfort from a conciliatory acceptance speech on Wednesday, surging U.S. crude supplies served as a reminder of the massive global glut, which the IEA said could persist through 2017.

"The IEA report showed that OPEC production has climbed to a new high, which is cause for concern," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "When we thought they were about to put their foot on the brake, they were actually putting their foot on the accelerator."

West Texas Intermediate for December delivery fell 61 cents to close at $44.66 a barrel on the New York Mercantile Exchange. Prices closed up 0.6 percent on Wednesday, erasing an earlier 4.3 percent slide as Trump’s pledge to unite divided political factions prompted a reversal in the knee-jerk sell-off. 

Aggregate trading volume on Nymex rose to a record 1.86 million contracts changing hands Wednesday, according to updated data on the CME website Thursday.

Upcoming Meeting

Brent for January settlement slipped 52 cents, or 1.1 percent, to $45.84 a barrel on the London-based ICE Futures Europe exchange, closing at a 48-cent premium to January WTI. The global benchmark crude rose 0.7 percent to $46.36 on Wednesday.

"The Trump election is extremely bullish for energy and infrastructure companies," said Jay Hatfield, the New York-based portfolio manager of the InfraCap MLP ETF with $125-million in assets. “It’s not irrational to expect the companies to be higher, while the commodity itself is lower, at least in the short term."

Read more: What to watch for in oil when Trump assumes the presidency

The next test for the oil market is whether OPEC can finalize an agreement to curb production at an official meeting on Nov. 30. Iranian Oil Minister Bijan Namdar Zanganeh is optimistic an accord will be reached when members meet in Vienna, the Oil Ministry’s news agency Shana reported.

It’s still too early to tell what impact a Trump presidency could have on the nuclear deal that enabled a resurgence in Iranian production, said Eni SpA Chief Executive Officer Claudio Descalzi.

Price Outlook

“Prices could fall to $40 or perhaps a little bit lower, especially in the absence of a deal” by OPEC, Abhishek Deshpande, an analyst at Natixis SA, said in a Bloomberg Television interview. While President-elect Trump may take measures to support the American oil industry, “U.S. production rising is only going to put further pressure on oil prices,” Deshpande said.

Non-OPEC producers such as Brazil, Canada, Kazakhstan and Russia will raise output by 500,000 barrels a day in 2017, the IEA said in its monthly report. That presents a challenge for OPEC, whose own output has also been increasing. While the market would move from surplus to deficit quickly in 2017 if OPEC implements its Algiers accord, the group will need to agree to “significant cuts,” the IEA said.

U.S. crude inventories rose by 2.43 million barrels last week to 485 million, according to an Energy Information Administration report on Wednesday. The nation pumped 8.69 million barrels a day in the week ended Nov. 4, the most since June.

Oil-market news:

  • OPEC faces increasing urgency to take measures that will support oil prices as Trump’s surprise victory threatens to deepen a market sell-off, according to UBS Group AG.
  • TransCanada Corp. said it’s is fully committed to building the Keystone XL oil pipeline and is looking at ways to engage with the Trump administration.
  • U.S. shale producers are achieving productivity gains of as much as 30 percent a year, according to BP Plc, while Rystad Energy said there’s huge potential for output growth.

— With assistance by Grant Smith

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE