While not said out loud, Opec wants oil at $70 a barrel
As soon as prices go up, though, Donald Trump takes to Twitter to talk prices — and US ally, Saudi Arabia — down
London — Ask Saudi Arabia about its preferred oil price and the kingdom will say it has no target. But a look at the pronouncements on the oil market by the world’s top oil exporter this year points to an oil price aspiration of about $70 a barrel.
Oil cartel Opec’s de facto leader probably would not mind oil prices rising to $75 a barrel and beyond, but it has a problem. As soon as prices surge, US President Donald Trump pops up, often on Twitter, to urge Saudi Arabia to lower prices.
Opec has long understood the impact a few words said to reporters in a hotel lobby or over the phone can have on the price of oil, often called “jawboning” by analysts.
As a result, prices have been stuck between $60 and $75 a barrel this year, despite financial market volatility and big oil supply outages, mainly driven by US sanctions on Iran and Venezuela.
Opec accounts for about a third of world supply and comments from unidentified officials with insight into production levels not previously disclosed, or forward guidance on Opec policy, can move prices quite significantly.
Opec and Saudi Arabia do not have an official price target, but sources say Riyadh wants oil to be at least $70. Verbal interventions by Opec and Saudi sources this year appear to support this.
Only in April with Brent near $75, according to comments reported by Reuters, has an Opec source with insight into Saudi production made a comment likely to cool prices. At least five other comments with oil between $70 and $57 have been price-supportive.
“Saudi Arabia is committed to do whatever it takes to keep the market balanced next year,” a Saudi official, who asked not to be identified by name, said on August 8, a day after Brent had fallen below $56, its lowest since January. The comment helped drive oil prices 2% higher on that day.
Opec has been mostly trimming production since the start of 2017 and traders say they expect Saudi Arabia to reduce output further amid slowing global oil demand.
“The oil cartel is well-trained in the practice of lifting sentiment and stabilising energy markets in times of trouble,” said Stephen Brennock of oil broker PVM of the August 8 Saudi comments. “This time was no different and leading from the front, as ever, was the group’s de facto leader Saudi Arabia.”
Meanwhile, Trump has been urging US ally Saudi Arabia to lower prices and make up for a shortfall in exports from Iran. His comments on Opec have sometimes had an even bigger impact on prices than Opec’s own.
“[Petrol] prices are coming down. I called up Opec, I said you’ve got to bring them down,” Trump told reporters on April 26, a day after Brent reached $75.60, its highest this year. Oil fell 3% on that day as Trump’s comments gave impetus to a sell-off.
With prices falling below $70 and $60, the frequency of Opec source comments likely to support prices has increased. With prices well below $75, Trump has eased back in his public pressure on Opec.