[ 2019-02-26 ]

Oil's rally fizzles as OPEC faces dilemma over Trump tweet
Oil is stumbling after a 30 percent rally since
Christmas Eve as speculation swirls over whether
OPEC will heed Donald Trump’s call to
temper prices.

Futures in New York extended losses after sliding
3.1 percent on Monday, the most in four weeks.
While crude is still over 25 percent below a
four-year high in October, the U.S. president
tweeted on Monday that prices are getting too high
and called on the Organization of Petroleum
Exporting Countries to “relax and take it
easy.”

Oil’s recovery in 2019 has been propelled
by output curbs by OPEC, with top member Saudi
Arabia making the deepest cuts.

Last year, the Saudis obliged when Trump urged
that taps should be kept open as his
administration sought to shrink Iranian exports to
zero via sanctions. Then the U.S. eased its
hard-line demand that the Persian Gulf
state’s customer halt purchases and gave a
number of them waivers to buy limited quantities.
That American move triggered a 38 percent collapse
in crude in the fourth quarter, dealing a blow to
the economies of OPEC members.

The group has learned from that mistake and is
unlikely to repeat it, according to two oil
officials in the Gulf region who asked not to be
identified.

Still, investors are wary over whether OPEC will
be able to defy Trump, who could enforce
legislation that shakes the organization to its
foundations.

The Saudis, meanwhile, are also facing political
backlash in the U.S. for the murder of Washington
Post columnist and critic Jamal Khashoggi.

“After a crude rally this year, it was just
a matter of time before Trump tweets” at
OPEC, said Satoru Yoshida, a commodity analyst at
Rakuten Securities Inc. in Tokyo. “Given
Saudi Arabia owes a lot to Trump, who defended
them after the killing of a Saudi journalist, it
cannot be ruled out Saudis would have to follow
the U.S. president’s demand.”

West Texas Intermediate for April delivery traded
at $55.32 a barrel on the New York Mercantile
Exchange, down 16 cents, at 3:38 p.m. in
Singapore. The contract decreased $1.78 to $55.48
on Monday, the lowest level since Feb. 14.

Brent for April settlement slid 1 cent to $64.75 a
barrel on the London-based ICE Futures Europe
exchange. The contract dropped $2.36 to $64.76 on
Monday. The global benchmark crude traded at a
$9.43 premium over WTI.

OPEC and its allies including Russia began output
cuts last month to avert a glut being created by
booming American shale-oil supplies and fragile
global fuel demand. While that’s helped
prices, growing optimism about a trade deal
between the U.S. and China as well as
America’s sanctions on Iran and Venezuela
have also boosted crude.

Goldman Sachs Group Inc. said this week that Brent
may take a fleeting trip to $70-$75 a barrel.

Source - Bloomberg

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