Trump's tweet scatters the oil bulls
A tweet from Donald Trump in favour of lower oil prices has put the cat among the pigeons.
"Donald Trump has just pulled the rug out from underneath those betting on an oil-price rally," says David Sheppard in the Financial Times. On Twitter last week he warned the oil producers' cartel Opec that oil prices were "getting too high" and asked them to "relax and take it easy", given that the global economy is "fragile".
This comes in the wake of an oil-price rise (as measured by the Brent crude benchmark) of almost 25% so far in 2019. Oil producers had slashed production in what Goldman Sachs analysts referred to as a "shock and awe strategy". Opec and the other big producer, Russia, have cut output from 31.6 million barrels a day (mbpd) in December to 30.8 mbpd in January.
Meanwhile, oil-producing Venezuela has been in meltdown, and Iran's production is limited by US sanctions. Dwindling supply had bolstered bullish sentiment. But only minutes after Trump's tweet, the oil price dropped by 2.5%. The tweet's impact illustrates the oil bull's "shaky foundations", says Sheppard.
US shale output is in full flood. In the past year, US oil production has risen bytwo mbpd to a record 12 mbpd in the past year. It is expected to surpass 24 mbpd over thenext six years, says Reuters. Last year, American oil producers experienced pipeline bottlenecks, but those should ease by the end of 2019.
ExxonMobil and Chevron, the two largestUS oil groups, have sharply lifted their expectations of output. For example, Exxon has revised its projection ofoil and gas production in the Permian region of Texas and New Mexico from 600,000 barrels per day to one milliona day in 2024.
The oil market is in a "tugof war" between Opec and shale, as Darrell Fletcherof Huntington Bank told Reuters. And the US team is gaining strength.