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OPEC+ kicks the can again as Trump is contributed to demand predicament: Russell

It was likely a. fairly easy decision for OPEC+ to once again postpone plans to. increase oil output.

The soft state of global demand is by itself adequate. factor to justify the choice at Thursday's conference of the. group to defer winding back some of its production cuts until at. least April.

But weak need growth may be the least of OPEC+'s concerns. as the oil market will be struck with the return of Donald. Trump and all the uncertainty and contradictory policies that. might bring.

Trump's go back to the U.S. presidency is likely to alter. the market characteristics for crude, but the issue is nobody actually. knows in what methods, and making choices even more difficult for. OPEC+, which combines the Organisation of the Petroleum. Exporting Countries and allies consisting of Russia.

The only thing that is completely clear from Trump's. rhetoric is that he wants more affordable fuel costs for U.S. customers.

To this end his arrival back in the White Home on Jan. 20. ought to be bearish for unrefined costs.

Trump's administration is likely to alleviate guidelines for the. U.S. oil and gas market in the hopes that this will lead to. greater production.

It might well assist boost U.S. natural gas output, especially. if international demand for liquefied gas stays robust.

However there's more of a question mark around U.S. crude. production, which is currently at record levels and might hit. capability restrictions.

It's also unsure as to why U.S. oil business would desire. to produce more oil if the impact of this is just to lower. costs.

It ends up being a calculation if the extra barrels can. increase revenue and profits even if rates compromise.

Some of Trump's other prospective policies could have opposing. impacts on the petroleum market.

Extensive tariffs on U.S. imports could upend international flows. if the procedures reach crude.

For example, tariffs on oil imports from Canada and Mexico. could lead to higher rates for U.S. consumers and lower. earnings for U.S. refiners, both of which are bearish for demand.

If other countries enforce retaliatory tariffs, U.S. crude. and product exports may be lower, which might be bullish for. rates as it decreases worldwide supply.

If Trump succeeds in bringing peace to Ukraine and at. least a ceasefire to the Middle East, this could be bearish for. crude as it will potentially include more Russian barrels back into. the marketplace as well as lowering the risk premium.

But if Trump goes hard against Iran over its nuclear. programme and ramps up sanctions and their enforcement, it may. be bullish for rates as it will be harder for the Islamic. Republic to move barrels and might ramp up geopolitical tensions.

Overall, Trump is most likely to be bearish for prices, most likely. not due to the fact that U.S. output will increase however most likely because. his policies will decrease global financial development.

ASIA DEMAND

It's not only Trump that OPEC+ has to contemplate, it's the weak. state of need in Asia, the top-importing area that buys. almost two-thirds of seaborne crude oil.

For the first 11 months of the year, Asia's unrefined imports. were 26.52 million bpd, down 370,000 bpd from the 26.89 million. bpd tracked by LSEG Oil Research Study for the very same duration in 2023.

The decline in imports stands in contrast to OPEC's most. current forecast for Asia's oil demand to broaden by 1.04 million. bpd in 2024 from the previous year.

Much of the decrease can be blamed on China, the world's top. oil importer, with OPEC and other analysts being wrong-footed by. both the soft economy and the increasing structural shift to. electrical automobiles and LNG-powered trucks.

The trend toward electrification is likely to speed up in. China, and the possibilities are it will expand across Asia as China. looks for brand-new markets to exploit its leadership in EVs, batteries. and photovoltaic panels.

Overall, OPEC+'s greatest problem is that it can only keep. the oil cost around $75 a barrel by extending its existing deep. output cuts of about an overall of 5.86 million barrels each day.

But in doing so it effectively subsidises its rivals and. gives them the first chance to grab any boost in global. need.

The views expressed here are those of the author, a writer. .

(source: Reuters)