$60 or $50 Oil?

Oil at $60 or $50 depends on OPEC, Trump and shale strength in 2017

Oil, depends, OPEC, Trump, Commodities, shale strength, 2017, $60, $50 Oil, fx trader, forex oil barrel

The oil market finished 2016 up 40% with OPEC and non-OPEC countries agreeing to cut production. A break above $60 in 2017 depends on three factors. Oil producing nations enforcing the quotas. The geo-political implications of a Trump presidency. The increase in United States (U.S.) shale production.

The agreements made by oil producing countries to curtail historic output are only statements at the moment. As 2017 gets underway and monthly production is data is released, will we be able assess whether the agreements are being fulfilled. I remain skeptical as there are numerous economic and political factors that cannot be determined at the moment. I believe a lot will hinge on the presidency of Donald Trump and his approach to allies and foes in the Middle East, Russia and China. As well as, potential rise of U.S. shale production.

Iran has managed to rapidly increase oil production since the Joint Comprehensive Plan of Action (JCPOA) was implemented in 2015. Mr Trump has made clear that scrapping the Nuclear Deal is not outside the realm of possibility. Is this political hardball or a serious statement of intent? Nobody knows yet. Adding to the breakdown of the status quo is the Trump / Putin dynamic. Mr Trump does not hide his admiration for the Russian leader and there are political theories in development outlining an anti-Chinese sentiment behind the bravado. This year Russia overtook Saudi as the largest exporter of crude to China. This has put Russia and the People’s Republic on good terms. It is possible that through Putin, Trump will enforce a hard line policy on China to settle disputes with neighbours in the Southeast Asia region. Russia might see itself as a superpower, however the country is still in the throes of a recession and desperately needs foreign exchange. Siding with the U.S. against China would immediately effect oil exports. Unless the U.S. along with the European Union (E.U.) lift the crippling sanctions. Another interesting point to ponder this coming year. What about Saudi Arabia? Trump has come out stating that the U.S. should become energy independent and not import Saudi crude. This is highly unlikely for two reasons. Firstly, the largest share of oil imports to the U.S. comes from Canada (41%) followed by OPEC members (31%). Denying Saudi is indirectly putting a halt to all OPEC nations. At least in theory. This would be detrimental for the U.S. economy. Secondly, Saudi Arabia through Aramco own downstream assets (refineries) in the U.S. If relations were to deteriorate rapidly, Saudi could create a bottleneck in U.S. refinement. Regardless if a Trump presidency takes a more aggressive stance towards diplomacy or maintains the status quo. Uncertainty creates volatility in the market. Aside from the political question mark, what about U.S. shale?