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OPEC Said To Consider 1.4 Million b/d Supply Cut, Risking Showdown With Trump

"I believe a cut of 1.4 million bpd is more reasonable than above it or below it."

Coming off the worst day in three years, WTI pared additional losses on Wednesday after reports indicated that OPEC and its allied producers are pondering a production cut of up to 1.4 million barrels/day.

To be clear, this isn’t “new”, per se. Rather, this is Reuters laying out one of the scenarios that was apparently discussed on Sunday in Abu Dhabi. The cartel and its partners stopped short of announcing an actual change in policy after the pow wow, opting instead for what amounted to a warning about the necessity of adopting “new strategies” going forward.

That was good for a fleeting bounce in prices on Monday, but bulls were subsequently crushed by Donald Trump who, after getting word that OPEC+ was considering new cuts, took to Twitter to essentially demand that the cartel recant its prospective sins or face further “covfefe.” That killed the nascent rally and on Tuesday, the bottom fell out entirely.

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“A supply cut of up to 1.4 million bpd was one of the options discussed by energy ministers from Saudi Arabia, non-OPEC Russia and other nations at a meeting in Abu Dhabi on Sunday”, Reuters reports on Wednesday, before quoting one of the sources as saying that “a cut of 1.4 million bpd is more reasonable than above it or below it.” The news was good for a quick pop which was faded.

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Iran and Russia would both need to be convinced of the new plan and according to another of Reuters’ sources, Tehran isn’t keen on complying with any production targets in light of the fact that its exports are getting hit by U.S. sanctions.

Separately, Mohammed Barkindo told CNBC the following on Wednesday:

What is happening at the moment, in our opinion, is the normal volatility that comes in the run up to our conferences. As you know, we reconvene in Vienna on the 6th and 7th of December … And this period between now and December is a period of anxiety for all stakeholders. We remain very focused on our principle objectives which we have made clear in the most transparent manner you can think of.

When asked if he was inclined to listen to Trump’s Twitter “advice”, Barkindo simply reiterated that OPEC will focus on “fundamentals”.

For his part, Citi’s Ed Morse writes in a new note that “while factors well beyond oil are responsible for the latest selloff, fingers could be pointed at the U.S., where President Trump’s recent tweet about OPEC is just one of many ‘made in Washington’ factors behind the recent record run of lower prompt prices.” Morse also reiterated that Trump’s trade war has the potential to dent demand.

You’re reminded that according to OPEC’s latest monthly report, out on Tuesday, the cartel sees demand for its crude well below current production levels in 2019.

OPEC

(Bloomberg)

Bring on the tweets.


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