Trump and the Art of an OPEC Deal
The rumor-flow on an OPEC production deal this week is mixed – but we still think a deal can get done. Saudi can permit some free-riding in order to establish a strong income statement and balance sheet for its Aramco IPO. The Trump surprise helps, as it somewhat rebalances regional power away from Iran, allowing Saudi to be more generous. On the other hand, Saudi is indicating it might rely on a Trump-inspired growth surge to exacerbate a short-term demand/supply imbalance that will raise prices even without a deal. But longer term, Trump’s energy policy is aimed at growing US supply, with infrastructure build-out, regulatory relief and encouragement of jobs and exports. This challenges OPEC to make itself relevant – and the only way to do that is with a deal. Time is running out on our call for $65 oil by year-end. But we remain steadfastly bullish, deal or no deal. We face an increasing short-term demand/supply imbalance that commands higher prices.