US President Donald Trump has accused the Organization of the Petroleum Exporting Countries (OPEC) of keeping oil prices artificially very high. He also added that the practice is “no good and will not be accepted”.
OPEC and Russian oil production have been reduced by about 2 million barrels per day and oil stocks have fallen on average by about half a million barrels per day in that time while prices are up about 65% from the lows of 2Q 2017.
Rising or falling US retail gasoline prices are frequently used as a metric of presidential success regardless of political party. The national average is now $2.76 per gallon, the highest level since mid-2015. The US is the biggest oil consumer in the world and accounts for 20% of total oil consumption.
Higher oil prices may likely translate into higher non-OPEC supplies than previously expected and this can lead to market share gains that could be difficult to reverse. In December 2016, the US produced 10.7% of global crude supply – while Saudi Arabia produced 12.8% and Russia produced 13.7%. The US has been growing its market share and Citi believes that if the OPEC deal holds by September 2018, the US could overtake both Russia and Saudi Arabia to become the world’s largest crude producer.
Citi analysts are overweight on the Energy sector as valuations are attractive relative to the market. Also, 1Q18 has seen positive earnings momentum and with oil prices supported, this theme can continue into Q2.