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Oil Is Well That Ends Well?

23 November 2018 by jbchevrel

Crude oil prices collapsed today again, on signs of record Saudi output, high inventories across the globe, risks of China’s economy slowing down, Iran effectively able to export thanks to waivers, and weaker risk sentiment. WTI lost almost 8% on the day, and around 34% since the October 3rd peak. Brent followed south $60/bbl. for the first time in a year. As a consequence, US IG energy companies (exploration & production, refiners, marketers, drillers) are underperforming today, their 5y CDS widening by 7/10bp. While Saudi Arabia and other OPEC members reportedly plan quiet output cuts to avoid Trump's ire, Russia doesn’t seem in a rush to join this move. Listening to Trump’s recent speeches, it is clear that he considers the c35% lower gasoline prices in the US a key achievement. Therefore he may well continue to pressure Saudis to not cut output, ahead of the OPEC meeting scheduled on Dec 6th in Vienna. Coincidentally, Trump has recently declared that he would support the Saudis despite his own intelligence agency concluded that Saudi crown prince MBS ordered Khashoggi’s murder.