Bloomberg Opinion: The oil price is now controlled by just three men

We have a rather blood curdling assertion from Bloomberg that three men now control the oil price. The only problem with this is that sure, Bin Salman, Putin and Trump have influence but the idea that they control the price is ludicrous.

Two of them are more controlled by it, the third has let slip the reins of power on that front. The point being that fracking has entirely changed the global oil market and price structure, it’s about time my fellow journalists caught up with that. OPEC has lost what control of the oil market it ever had.

The actions (or tweets) of three men. Presidents Donald Trump and Vladimir Putin and Crown Prince Mohammed Bin Salman will determine the course of oil prices in 2019 and beyond. But of course they each want different things.

Oil rose for a fourth session in a row on Monday, buoyed by the prospect that top exporter Saudi Arabia will push OPEC and maybe Russia to cut supply towards the end of this year. Brent crude futures were up 24 cents at $67.00 a barrel by 1000 GMT, while U.S. futures rose 38 cents to $56.84.

While OPEC struggles to find common purpose, the U.S., Russia and Saudi Arabia dominate global supply. “Oil prices continued to recover (as) the market will be watching closely for the possible impact of a (supply) cut,” said Sukrit Vijayakar, director of Indian energy consultancy Trifecta.

The Organization of the Petroleum Exporting Countries, led by Saudi Arabia, is pushing for the group and its partners to reduce output by 1 million to 1.4 million barrels per day to prevent a build-up of unused fuel. Bin Salman needs oil revenue to fund his ambitious plans to transform Saudi Arabia, while avoiding unrest from those hurt in the process.

It was Saudi Arabia and Russia that led the push in June for the OPEC+ group to relax output restraints that had been in place since the start of 2017. “It appears that the market takes a production cut for granted.

We’ll see if it is right after the next OPEC meeting on December 6. It is not unreasonable to anticipate stable prices until then,” PVM Oil Associates strategist Tamas Varga said. Both subsequently jacked up production to record, or near record, levels.

U.S. output soared unexpectedly at the same time, as companies pumping from the Permian basin in Texas overcame pipeline bottlenecks to move their oil to the Gulf coast. All three are pumping at record rates and each could raise output again next year, although they may not all choose to do so.

Russian Energy Minister Alexander Novak said on Monday that Russia, which is not an OPEC member, planned to sign a partnership agreement with the group, and that details would be discussed at OPEC’s Dec. 6 meeting in Vienna.

The increases, alongside smaller downward revisions to demand growth forecasts and President Trump’s decision to grant sanctions waivers to buyers of Iranian oil, have flipped market sentiment from fears of a supply shortage to concerns about a glut in the space of three months.

Despite Monday’s gains, Brent is almost 25 percent below early October’s 2018 peak of $86.74, as evidence of slowing demand has materialised and output from the United States, Russia and Saudi Arabia hit historic highs.

Oil stockpiles in the developed nations of the OECD, which had been falling since early 2017, are rising again and are likely to exceed their five-year average level when October data are finalized, according to the International Energy Agency.

The Russian president shows no great enthusiasm for restricting his country’s production again. Moscow’s budget is much less dependent on oil prices than it was when Russia agreed to join OPEC-led efforts to re-balance the oil market in 2016 and the country’s oil companies want to produce from the fields where they have invested.

The International Monetary Fund forecasts that the kingdom will need an oil price of $73.3/bbl next year to balance its fiscal budget. A bigger U.S. threat to Saudi plans than Trump’s tweets will come from the Texas oil patch.

A U.S. decision to grant waivers to some of Iran’s oil customers, who faced the prospect of a drop-off in supply from sanctions that came into force in early November, has also helped soothe concern about availability of crude.

As oil prices have headed south, Saudi Arabia said it would cut exports by 500,000 bopd next month and warned fellow producers that they needed to cut about 1 MMbpd from October production levels.

A trade dispute between the United States and China is one reason investors are a lot warier about the outlook for oil demand growth next year. Fund managers cut their bullish exposure to crude futures and options to the lowest since around mid-2017 this month.

Weekly exchange data shows money managers hold a combined net long position equivalent to around 364 million barrels of U.S. and Brent crude futures and options, down from over 800 million barrels two months ago.

“The main trend remains bearish as investors no longer believe in a risk of supply tightness for crude,” ActivTrades chief analyst Carlo Alberto De Casa said. Saudi Arabia will have to risk Trump’s wrath, Putin’s indifference and a booming U.S. shale industry if it hopes to balance the oil market in 2019.

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