Like a boxer, sometimes markets must cover up when confronted with big punches. If the left hand of the heavyweight Laughing Boy Trump is bearish by repeating a promise that the US will raise production to bring oil prices down, then the right hand is the bullish announcement of the first sanctions on ships that handle Iranian oil exports to China. With such an unpredictable opponent to conclusive strategy, and to be done with the boxing analogy, it is best just to sit on the ropes. Oil prices are taking an overall dim view of a world bounded by tariffs and the grind lower continues. The oil suite is losing its sheen, the New Year attraction of financial monies from stock markets, which went through a period of self-assessment, is likely finding its way back into the current global bourse revival. Our market is still one of opportunity and micro-interest, but none at present can stop the overbearing influence of whatever emanates from the White House.

In an example of how the new swathe of sanctions on Russian shipping is working is reported on Bloomberg, using Oilchem data. Refinery rates in independent processors of the Shandong region have fallen to under 44%, which is the lowest since March 2020 during the pandemic. Matched with poor margin and the current economic malaise within China the so-called ‘teapots’ have little choice other than to dial back on chemistry. With Asia Crude demand in mind, it is worthy to note the cut in India’s interest rate this morning. To counteract, what is hoped to be a seasonal blip, a current reading of 6.4% annual growth compared with a 6.7% target, the Reserve Bank of India cut the repo rate by an expected 25-basis points. The seeking of alternative supply by India’s refiners is helping to keep Asia grades bid but the underlying economic situation, needing a hand from the central bank, may point to unforeseen demand issues.

OPEC here to stay

The absence or at least the supposition, of Russian supply caught by the newly implanted sanctions imposed by the former President Biden, arguably gave a much freer ride to OPEC on this week’s decision to rollover current plans. The recent rally, obviously now abating, in this New Year has played a complicit role in enabling OPEC+ to keep to the strategy of beginning to reintroduce withheld supply from April. However, the next time there is a need for OPEC to keep to the policy of bringing back self-imposed cuts will be much more difficult to achieve agreement. The White House’s free use of tariff threat has already brought a fear of international trade restriction and with it peril to the demand outlook for oil trade and prices.
Plotting a path in 2024 for the group was hard enough by having to c

onsider a future of weak demand and rising non-OPEC supply, but adding a US Presidential maverick, who has no hesitancy in interfering with the price of oil; the layers of concern for oil supply management have dramatically increased for 2025. Mr Trump made short work of how he planned on dealing with OPEC+. Three days after taking office and in a speech to the World Economic Forum, he indicated he would ask Saudi and OPEC to bring down the cost of oil. There is little doubt that pandering to the US electorate by brow-beating an easy oil price scapegoat was low hanging fruit, however, the President does have a point that lower prices might incentivise Russia into a negotiated peace with Ukraine because the cost of the war is eating into assets, causing higher interest rates and inflation.

Whatever political pressure the US might apply, it is way too early to believe that OPEC are ready to cast Russia adrift. Despite its persistent cheating and obfuscation of oil production and exports, Russia’s massive oil resources have been contained within the group’s pleasure and the cartel is all the stronger for it. There have always been charges of existential threat to OPEC, particularly when a member leaves, as was the case when Angola, Qatar, Indonesia and Ecuador threw in their towels. Additionally, and importantly, the Russia/Saudi clash in 2020 where the former refused to cut production and the latter replied by opening the spigots to a price crash have all been survived. Therefore, the market should not expect a knee-jerk reaction. The plan to slowly bring shuttered barrels back by 2026 is likely to remain unhurried, and of course OPEC+ have dealt with the recalcitrant language of Trump before.

Words are one thing, but Iran is about to feel the ire and attitude repetition of Trump’s last office and there is something of understandable desperation shown. Recently quoted on Bloomberg, Iran’s President Masoud Pezeshkian urged unity in the cartel and implored, “If members act unitedly […] the US will not be able to sanction and place one of them under pressure.” This is of course a hardly veiled reference to the crushing of Iran’s exports under the previous tenure of the Donald. Iran’s market share is about to be taken by others and probably by a member cohort. Returning to Iran’s President, he pipe-dreamed aloud, “OPEC members should act in a way so that their measures do not harm another member.” Whether or not members act to harm is debatable, but there is little doubt they sometimes act to suit themselves.

It is a strange phenomenon, and peculiarly ‘OPEC’, where a cooperative can act as a price management vehicle but still have members that often help themselves in what appears acceptable self-interest. When opportunity knocks there is hardly an instance when it is not answered. For example, the self-styled policeman of OPEC, Saudi Arabia, has just raised its official selling price (OSP) for March deliveries into Asia by a whopping $1.50/barrel and thus taking full advantage of the tighter prices in Asia grades as customers pursue sources of feedstock other than Russian. While this is not exactly the same as the artifice of Iraq, Kazakhstan and when part of the game, Russia, in consistently producing beyond quota, it is hardly an ‘after you, sir’ gesture of politeness.

There will be speculation on OPEC’s survival, there always is. But the market should accept circumspection from the group, topped with pragmatism that despite each other’s failings, they survive. The de-facto leader, Saudi Arabia, carves the form of 18th century French diplomacy and straddles Washington and Moscow without an eyebrow raised. There is deftness and subtlety, OPEC+ will pump when it can, cut when it must, and compromise is never a dirty word. When all else fails, adopt vagueness in promise, hinder monitoring of production and hide all member’s dirty washing in the group’s laundry.

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