Brent gained significantly more than WTI last week, rising $1.03/bbl to average $63.66/bbl. WTI rose $0.28/bbl to average $57.43/bbl. For the week ahead we expect volatile prices in light of the OPEC+ meeting. Prices are likely to average lower than last week at $62.50/bbl unless OPEC surprises with a larger than expected production cut.
Rumors are swirling that Saudi Arabia is pushing to add up to another 500 mb/d to current production cuts, in part to support the upcoming Saudi Aramco IPO. Reports from unnamed sources that Saudi Arabia is working to build consensus on the cuts pushed prices up on Monday, and will lead to additional volatility this week. Unless Saudi Arabia is willing to take on the majority of the burden of additional cuts, we think it unlikely that the group agrees to an adjustment. Several countries continue to sell above their quotas and compliance will certainly come up in advance of deeper cuts. The most likely outcome continues to be an extension until June 2020 with the possibility of further adjustment.
Also Monday morning, President Trump announced that he was reimposing tariffs on all steel and aluminum imports from Brazil and Argentina. This adds more complexity to the United States’ myriad trade disputes. Congress has still not ratified the USMCA, and seems unlikely to before the New Year. December 15 additional tariffs are scheduled to go into effect against China. Beijing is already insisting that current tariffs be rolled back in order to sign a Phase One trade deal, and if new tariffs go into effect talks could be quickly derailed.
Geopolitical Unrest – Neutral
Global Economy – Neutral
Oil Supply – Negative
Oil Demand – Neutral
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