3 ways Trump win will make OPEC deal work

November 21, 2016 4:43 pm

Rubber masks depicting U.S. President-elect Donald Trump are seen at the Ogawa Studios, a mask making company, in Saitama, Japan, November 21, 2016. REUTERS/Toru Hanai

* OPEC remains committed to deal but past meetings haven’t reached a consensus

* Trump win has increased incentive for cartel members to work together

* Trump government might weaken Iran’s position, smoothening OPEC politics

We are only few days away from the most awaited OPEC meeting in Doha, where the world’s biggest oil producers are expected to announce their plans to restrain oil oversupply in the global market.

But there is no guarantee that the deal would happen despite repeated calls and promises from the chief of the 14-country cartel and many individual members, because nearly half a dozen meetings convened since December last year have all failed to reach a consensus.

Mohammed Barkindo, the Secretary-General of the OPEC says the group remains committed to a deal made in Algiers in September this year to cut output.

Nonetheless, some countries have already backed out ahead of the meeting citing various reasons. Iraq will make suggestions at the meeting in Doha on November 30 but it has hinted that it would not be contributing to any output cut.

Read: Iraq to make suggestions to facilitate OPEC supply cut agreement

Iran has been at the centre of battle but there are reports that an agreeable solution has been found for the agonies of Tehran, which had been faced with sanctions over a nuclear programme. But Nigeria, Libya and Indonesia have asked for to be exempted from the deal.

Read: Oil may rise to $55 if all producers cooperate: Iran

But Donald Trump’s victory in the US presidential elections have boosted the likelihood of the deal, the first since 2008.

Read: Trump wins elections: Oil and gold lose momentum

According to BofA Merrill Lynch, the corporate and investment banking division of Bank of America, as downside oil price risks have grown after Trump’s victory, the incentive for cartel members to work together has increased.

Read: 3 ways Trump’s win will let oil sink

In the latest Global Energy Weekly report, the bank’s research division lists three reasons why the unexpected outcome of the elections will make the OPEC deal more likely.

Slowing demand from emerging markets

Only a cohesive and disciplined cartel can cope with a big slowdown in emerging markets oil consumption. After all, OECD total oil stocks are at 3.07bn barrels!

Trump vs Iran

A Republican-led government may significantly weaken Iran’s negotiating position inside the cartel, smoothing internal OPEC politics.

In the bank’s opinion, Iran’s worst case production scenario for the next two years, essentially maintaining output at current levels, may have just become a best case scenario.

US shale oil push

A US energy independence agenda is back in play, and OPEC will have to figure out a way to cope with it. The cartel thus faces a moment of truth on November 30: come together… or sink together.

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AMEinfo Staff
By AMEinfo Staff
AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.



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