“And I’m also going to ask Saudi Arabia and OPEC to bring down the cost of oil. You got to bring it down, which, frankly, I’m surprised they didn’t do before the election. That didn’t show a lot of love by them not doing it. I was a little surprised by that. If the price came down, the Russia-Ukraine war would end immediately. Right now, the price is high enough that that war will continue,’’ Trump said. ‘‘With oil prices going down, I’ll demand that interest rates drop immediately. And, likewise, they should be dropping all over the world. Interest rates should follow us,” he added.

In effect, Trump is asking OPEC to use the oil price to achieve both foreign policy and economic objectives. However, Standard Chartered has argued that Trump is unlikely to get his wish for several reasons.

According to commodity experts, the link between lower oil prices and foreign policy objectives is not a new one: historians have drawn a link between the 1985-86 oil price crash and the fall of the Berlin Wall in November 1989, as well as the dissolution of the Soviet Union in December 1991. However, StanChart has pointed out that the geopolitical effect from the 1985-86 price collapse was clearly not instantaneous.

To replicate the 1980s experience, the OPEC spot Reference Basket price averaged 47% less in 1986-89 than in 1980-85. A similar 47% fall from the 2024 Brent average would take oil prices close to USD 40 per barrel (bbl), a price which would almost certainly derail the domestic U.S. energy agenda. StanChart says that OPEC has limited power to end the Russia-Ukraine war immediately through a reduction in the oil price, with OPEC ministers likely viewing this strategy as a very inefficient and costly way of attempting to achieve foreign policy objections relative to, for example, diplomatic channels and targeted sanctions.

Indeed, Saudi Arabia’s energy minister and several of his OPEC+ counterparts held talks following Trump’s call to lower oil prices, but delegates said its Feb. 3 meeting is unlikely to adjust its current plan to start raising output from April.

StanChart has argued that the decision by OPEC+ to delay the planned output increase by three months to April 2025 and extend the full unwind of production cuts by a year until the end of 2026 will ensure that oil markets are not oversupplied in 2025. According to StanChart, by both delaying the start of voluntary cut unwinds and flattening the slope of the m/m increases, the organization has effectively removed a large amount of oil from the 2025 plan. The analysts point out that the previous plan for voluntary cut unwinds and the UAE target increase would have added a cumulative 496.3 mb to the market in 2025; however, the new schedules will now add just 191.3 mb, good for a 836 thousand barrel-per-day (kb/d) cut for the whole year.
Further, StanChart’s supply-demand model implies that output can increase under the new schedules without causing a global inventory build, even without consideration of compensation. StanChart has forecast a 2025 global demand increase of 1.31 mb/d, with non-OPEC supply growth clocking in at 0.96 mb/d. StanChart’s model puts the Q1 balance as a draw of 0.2 mb/d, the same result as in the current EIA projections. StanChart has projected an overall draw of 0.1 mb/d for the entire 2025, even if there are no reductions in export flows from Iran during the year. StanChart says the market has not priced in the full extent of how much oil has been removed from the plan.

Previously, StanChart correctly predicted that, given the negative market sentiment that ruled for most of 2024 coupled with an overly pessimistic market view of 2025 balances, tactically, the best choice for ministers was to delay any unwinding of voluntary cuts to the end of Q1 and perhaps even further out. According to StanChart, much of the negative sentiment that has dominated oil markets over the past couple of months can be chalked up to misapprehensions about the tapering mechanism for the voluntary cuts made by eight OPEC+ countries. Many traders are worried that the balance of oil demand growth and non-OPEC+ supply growth might not offset the scale of restored OPEC+ output, leaving oil markets oversupplied. However, the experts have pointed out that this assumption flies in the face of continued reassurances from OPEC+ members that the tapering would be fully dependent on market conditions rather than being automatic.

Oilprice.com