After having a stellar start to the year, oil prices have slipped again as US President Donald Trump called on the world’s largest producers to lower prices.
This makes next week’s meeting of the Organization of the Petroleum Exporting Countries’s Joint Ministerial Monitoring Committee all the more crucial.
Oil prices have experienced a significant decline since mid-January, with the price of Brent crude oil dropping by almost $7 per barrel.
This decrease has brought the current price of Brent crude oil to just around $76 per barrel, marking a notable shift in the global oil market.
This recent price drop can be attributed to a variety of factors, including changes in global supply and demand dynamics, geopolitical developments, and economic conditions.
But, more so as the market expects some kind of a reaction from the OPEC+ alliance in regards to Trump’s call for lowering oil prices.
Trump’s comments weigh on oil prices
On January 23, US President Donald Trump said he will pressure Saudi Arabia and OPEC to decrease oil prices.
Trump was addressing OPEC and other world leaders gathered in Davos on Thursday.
He urged Gulf nations to lower oil prices, stating that this could contribute to ending the Russian war in Ukraine.
Trump told the World Economic Forum in Davos, Switzerland:
If the price came down, the Russia-Ukraine war would end immediately. Right now, the price is high enough that that war will continue – you got to bring down the oil price.
“They should have done it long ago. They’re very responsible, actually, to a certain extent, for what’s taking place,” Trump added.
While there have been no formal announcements or press releases from OPEC regarding the discussions, multiple media outlets have reported that Trump engaged in telephone conversations with several OPEC representatives, including key officials from Saudi Arabia.
These reports suggest that the President may be seeking to influence OPEC’s decision-making process regarding oil production and pricing, potentially aiming to ensure stable and affordable oil prices for the global market.
However, the specific content and outcomes of these conversations remain undisclosed, leaving room for speculation and uncertainty regarding the potential impact on future OPEC policies and the overall oil market.
Possible price war?
Some market chatter also pointed to a possible price war between the OPEC nations and the US.
“The flattening of the forward curve, on the other hand, is less of an indication that US President Trump’s appeal to OPEC is falling on receptive ears. If this were the case, the prices of contracts with longer maturities in particular would have fallen more sharply.” Carsten Fritsch, commodity analyst at Commerzbank AG, said.
After all, it is rather questionable whether Trump will find a lever to put Saudi Arabia under pressure.
OPEC+ is sitting on a massive oil spare production capacity, and is scheduled to raise oil output from April.
However, “analysts remain skeptical of a potential price war between major producers, noting that an oversupply scenario could drive Brent crude prices below $50 if spare capacity is aggressively deployed,” Arslan Ali, analyst at FXempire said.
The OPEC+ Joint Ministerial Monitoring Committee (JMMC), which meets on Monday, will be of particular interest this time.
Although not a decision-making body, the committee’s recommendations carry significant weight.
Unwinding of steep output cuts
As mentioned above, OPEC+ is sitting on a massive spare production capacity of crude oil.
In April, the cartel is expected to unwind some of the voluntary output cuts and raise production, which may further depress the market.
This comes at a time when the International Energy Agency has forecast that the market would be oversupplied by 750,000 barrels per day this year.
“Concrete responses to Trump’s appeal are not expected,” Barbara Lambrecht, commodity analyst at Commerzbank AG said.
“However, the JMMC could point out that the voluntary cuts by the eight producing countries, totalling 2.2 million barrels per day, will be phased out anyway from April and that production will therefore rise,” she said.
In this way, OPEC could “cleverly” extricate itself from the affair.
Libya overproducing
OPEC+ is increasingly challenged by individual countries, such as Kazakhstan, who have expanded their production capacity and are likely to advocate for higher quotas.
Source: Commerzbank Research
The new survey-based production estimate may also reveal that Libya, an OPEC member exempt from quotas due to civil war, has reached a new record high in production, according to Commerzbank.
“We expect the oil price to continue to fall, especially in the face of relatively ample supply. However, trouble could always come from the US, if President Trump changes his mind and tries to use sanctions to force Russia to back down,” Lambrecht said.
Whether Trump will impose import tariffs on crude oil from Canada and Mexico is also likely to be important. The decision on this is imminent.
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