Energy Outlook Q4 2017

Geopolitics to Trump OPEC Cuts in 2018?

BY SEAN EVERS, MANAGING PARTNER, GULF INTELLIGENCE

  • January-01-2018
Geopolitics to Trump OPEC Cuts in 2018?

Literally, just as I sat down on New Year’s Day to review the results of our GIQ Survey: Energy Outlook 2018, North Korea’s leader Kim Jong-un came on the television to tell the world he had a nuclear launch button always on his desk -- he declared the entire US was within range of North Korean nuclear weapons, adding: “This is reality, not a threat!” 

Trump’s immediate rebuttal: my Button is Bigger!
It was perhaps no surprise then to see the polling on the Gulf Intelligence survey question on whether Geopolitics would replace OPEC output cuts as the biggest driver of oil prices in 2018 – with some two thirds of the 250 energy industry respondents believing that political uncertainty is destined to return to center stage over the coming year.
It has been a decade since oil prices first broke through the holy grail of $100 a barrel, but perhaps it has been even longer since a notable geopolitical risk premium has played an active role inflating crude above its natural supply-demand equilibrium – with prices quadrupling in the years 2003-2008 when hundreds of thousands of U.S. troops were engaged in battle in Iraq and Afghanistan.  
We saw a few smoke signals emerge through the last quarter of 2017 that oil traders were starting to pay attention to the increasing number of unpredictable aspiring strongmen seeking promotion to the top table, with growing concerns that there aren’t enough seats to accommodate all those wishing to be heard.
As record inventory levels slowly but surely retreat to their five-year average status quo, traders are having hiccups of nervousness creeping in to the outlook for tightness in supply-demand fundamentals. -- some 60% of the GIQ survey respondents expect oil producers to maintain robust compliance through 2018 with the agreed supply cuts.
A majority of those we polled indicated that they expect Brent crude oil to be on average about $10 a barrel higher this year, with prices forecast to rise into the $60s-a-barrel range, which, if it materializes, could pump an additional $300 million daily into OPEC coffers.
While the determined young dictator of North Korea was making his latest bellicose threats against the U.S., President Trump was busy sending his first tweet of the New Year condemning Pakistan, a longstanding ally, for lying and deceit – it may indeed turn out to be the year of who needs enemies when you’ve got friends like this!
Happy New Year!