The near terms verdict is that OPEC+ reduction in crude oil output will keep the price supported (wti around $59 handle), considering worldwide glut and general habit of members to cheat. The price action of black gold has disappointed investors in the second half of 2019 as investors have weighed the impact of the Sino-American trade conflict, US oil fracking production and Middle Eastern geopolitics on global demand. However, as most analysts seem convinced that oil prices should remain range-bound in 2020 by forecasting flat demand amid improving US-China relations and an extension of OPEC+ supply curbs, there are good reasons to assume that both the state-owned Saudi Aramco’s IPO and US production still need to be factored in. While an IPO should incentivise Saudi Arabia (i.e. Saudi Aramco) to supply customers at levels well below initial quotas planned by the group of 14, the US, the world’s largest oil producer in over two decades, is playing a major role in tempering supply shortages through its drilling production activities. Nevertheless, as general elections in the US are due on 3 November 2020, the question is whether the Republicans will retain power or whether the Democrats will take over: two distinct scenarios that will undoubtedly play a key role in the outlook for oil prices in 2020. Whereas the Trump administration would be willing to expand energy infrastructure in order to increase output capacity, Democrats would be swift to follow Obama’s preferred approach, limiting drilling leases and banning fracking; restrictive measures that would ultimately exert upward pressure on crude prices. Accordingly, despite protracted geopolitical risks emanating from Iraq, Iran and the September 2019 attack on Saudi Aramco plants, we consider that the reappointment for a four-year period of US President Donald Trump, currently the favourite candidate in current election surveys, should allow US oil producers to mitigate supply shortages, with oil prices unlikely to reach the ranges seen back in 2018. On the contrary, it seems clear that the ballooning US reserves of crude oil have only just started their ascent.
By Peter Rosenstreich