OPEC Secretary General Haitham Al Ghais speaking at the African
Energy Week that took place in Cape Town, South Africa, from 4-8
November 2024 [photo credit: @OPECSecretariat]
Third — and, some might argue, ‘on the other hand’ — there is
geopolitics. How the conflict in the Middle East will evolve in the
coming weeks also remains far from certain (even before the
self-proclaimed ‘first buddy’ Elon Musk allegedly met ‘secretly’ with Iran’s ambassador to the UN last week, a meeting which Tehran “categorically denies” took place). However, Mr Trump’s hawkish nominations in the past few days — Macro Rubio, Mike Waltz, Mike Huckabee
— are arguably consistent with the opinion I set out on 11 November
that he would seriously consider directly involving US forces in the
strikes against Iran’s nuclear facilities on which Benjamin Netanyahu
seems intent. Although investors have been remarkably relaxed, to date,
about conflict-related supply side risk, this scenario could see Brent
“heading towards, or even through, US$100pb”, as I argued in the 28 October Newsletter. However,
any spike would likely be short-lived if the US were directly engaged;
and a successful campaign could be worth US$3-5pb off the current price
of Brent (i.e. US$72.50pb) as perceived political risk across the region
eased.
Also on geopolitics, the emerging consensus appears to be that any
agreement over Russia/Ukraine is unlikely to be struck quickly, meaning
no major change in the volume of Russian oil finding its way into the
international market in the foreseeable future. As Russia expert John
Lough wrote in a 12 November note for Chatham House:
…a charge that he was a weak negotiator would offend [Mr
Trump’s] vanity and damage his image in the view of Chinese
policymakers – who will be watching closely. It is fair to assume that
Trump will want to avoid this perception since he has worked hard to
create the impression that China, Iran and others should continue to fear him in his second term.
Pulling all this together, I am reminded of the 5 September note by Bloomberg’s commodities expert Javier Blas from which I quoted in the 27 September Newsletter as follows:
…looking at the 2025 balance of supply and demand, OPEC+ is
simply kicking the can down a very uphill road. In two months, the group
will have to take another fateful decision. If it wants higher oil
prices in 2025, it will have to do far more than delaying the almost 2
million barrels a day of extra production that it penciled in by the end
of next year. It will need to cut output outright. Without curbing
production, further price drops loom.
OPEC+ chose to duck that “fateful decision” earlier this month. Doing
so again on 1 December would be no easier as the eight voluntary
cutters in particular chaff at idle capacity. They may decide enough is
enough. However, barring a major and seemingly sustainable supply side
shock between now and then, a ‘decision’ again to do nothing still looks
to be their least bad option.
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