Oil: Weakening macro backdrop – ANZ

According to ANZ analysts, crude oil market faces an important decision point, as OPEC and its allies meet to review OPEC’s oil production strategy and the weakening macro backdrop is further complicated by changes in Saudi Arabia’s ministerial responsibilities.

“The surprise replacement of Saudi Arabia’s Energy Minister, Khalid Al-Falih, with Prince Abdulaziz al Salman raises questions about the kingdom’s oil policy. We don’t see the move as a prelude to significant change. The prince is a long time energy ministry official and has been part of the Saudi delegation that has set the OPEC production policy. As OPEC and its allied producers (such as Russia) meet in Abu Dhabi, they face unprecedented uncertainty. In particular, tension between the US and Iran/Venezuela continues to impact the market. We have subsequently reduced our forecast oil demand growth to 1mb/d this year (from 1.2mb/d). Even so, we see sizeable stock drawdowns in Q4. With crude oil well below Saudi Arabia’s target of USD80/bbl, we feel they have no choice but to continue the current production cut agreement to help support current prices. However, the ability to push prices higher looks limited.”