Supply Cut Could Lead to Higher Prices

The price of oil has been like a roller coaster for the past year with ups, then downs in a constant cycle.

But in the past month, the roller coaster has hit a mostly calm patch with prices at $55/barrel to start February and prices at $56.62 at press-time in early March — with very few significant increases or decreases for the past month.

Will this calm patch last?

It’s not likely.

History shows that oil prices rarely are consistent and recent politics show that a drastic change may be on the way.

Oil experts stressed this month that they’re closely tracking the decisions of OPEC in regards to how it’ll handle production cuts on the global market.

OPEC originally said that it would review global supply in April to make a decision on how cuts were impacting the market in lieu of Iranian and Venezuelan oil being taken from the global market.

But they’ve since had an about-face and have pushed back that deadline to June to be able to better evaluate the market and what’s needed going forward into the future.

Further cuts could decrease the supply glut that’s kept prices lower than folks locally want. If that happens, prices could go north and quickly.

If the production cuts are lifted, prices could sink — an unknown future, but one which will play out in the coming weeks.

“There is uncertainty in the future market,” Benjamin Lu with Phillip Futures told pool reporters earlier this month. “Forecasts generally show there will be continued cuts which would support an increase. But there are other factors in play that could change the outlook day-by-day.”

Data collected by investment banking company Goldman Sachs supports a price hike in the coming weeks.

Goldman’s commodity Chief Jeffrey Currie told national media in early March that OPEC’s cuts were going to remove the “excessive oil” from the global supply in the coming months — a move which would cause the price to trickle upward heading toward the summer.

In recent months, global supply has gone down — both by design and also due to sanctions on Iran and Venezuela. But price has struggled to take a significant upward tilt because global supply has also been down, as well.

But if the supply drain continues, the cuts will exceed demand soon, according to data collected by Sachs, which will impact price.

Currie said $70/barrel oil would be the price point he expected to see soon.

Business leader Barclays also agreed with that in an early March report, stating that $70/barrel will be soon coming.

“We retain our more bullish view of $70 (barrel oil) for the year,” their report reads.

So if experts all over the industry are thinking that conditions are favorable for a price increase, why is there such a lack of certainty about the future?

It’s simple: politics.

OPEC has its own agendas for global price, but United States President Donald Trump has his own ideas, too, which often conflict with those of OPEC.

President Trump has been outspoken in the recent weeks about his desire for prices to be as low as possible, calling cheaper oil a “tax cut” for the American people because they then pay less at the pump for gas.

Trump supports a larger oil supply globally and a lot of the increases have come from the United States where shale production has increased significantly in the past several years.

Trump also is attempting to hammer out a trade deal with China, which could impact the global economy and have a direct impact on demand.

But while Trump’s words and tweets have some on edge, Barclays officials said they believe OPEC still holds the cards.

If it continues to cut supply after that June meeting, the price will follow — regardless of what President Trump wants. He remains a supporting character in this, they say, though they admit that his actions do cause a lot of the fog in the long-term forecast.

“The biggest source of uncertainty for oil markets this year is not the United States. It’s OPEC’s response to United Statespolicy decisions,” the company says in its report. •

BY CASEY GISCLAIR