Last week’s note had a geopolitical focus as we laid out why we think Donald Trump will have an outsized impact on oil prices this Spring. Our theory here is that Trump’s decisions on waivers for buyers of sanctioned Iranian crude and a potential US/China trade deal will be the two most important events for traders to watch.
This week things got slightly more interesting in terms of geopolitical risk as Russia sent a chill down the spine of crude oil bulls by questioning their commitment to the OPEC+ pact. To summarize, Russia’s Finance Minister gave prepared remarks over the weekend which sewed doubt into the idea they’ll continue to hold hands with OPEC to shrink global crude inventories. The Minister even mentioned a desire to fight for market share against US producers. For fun, he added that the odds of a global recession are elevated and that Russia’s streamlined budget was well prepared to manage such an event taking a shot at their fiscally-strained ally Saudi Arabia. Two days later, Vladimir Putin cryptically pledged support for the production decreases but conceded that the oil market is rapidly changing, and they may have to change course as circumstances dictate. Our view is that $70 Brent almost fully prices-in an extension of the existing production cuts, so any interruption to this baseline market assumption could
have aggressively bearish consequences in the coming months.
Do these comments mean that a production cut extension is now unlikely?…
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