November 11, 2016 / 5:40 PM / 3 years ago

Q&A: Venezuela seen as key risk to oil market, Trump not so much-World Bank economist

(Reuters) - Donald Trump’s election to the White House is unlikely to have a near term impact on oil prices, according to John Baffes, a senior economist at the World Bank.

Baffes, lead author of the bank’s Quarterly Commodity Markets Outlook report, also told the Reuters Global Markets Forum on Friday that any OPEC deal to cap or cut production would have only a limited impact on the price of oil.

The following are excerpts from the conversation:

Question: What impact do you see a Trump presidency having on oil prices?

Answer: Our recent forecast had oil at $57 per barrel for 2017, and that assumed some impact from OPEC’s decision to limit output. We don’t see much change to this outlook based on recent developments.

Q: Any effects on U.S. shale output?

A: It’s too soon to tell because there are quite a number of factors that will affect oil production stemming from the supply side as well as from the regulatory side.

Q: What other risks are there for the oil market?

A: Another key risk in the global oil market currently is Venezuela, which supplies 2.6 million barrels per day (bpd) out of 95 (million bpd) of global production. If the country faces deeper turmoil, there could be disruption to oil supplies.

Q: OPEC members pumped a record 33.83 million bpd in October. The group meets at the end of the month to approve a plan to cap the group’s production to between 32.5 million to 33 million bpd. How much of a market impact would an OPEC agreement have?

A: (A deal) will only have a limited impact on the global market. Historically, agreements to control supplies of a commodity have typically eventually fallen apart. Second, OPEC’s own history suggests limited impact as well because limited supply encourages other actors to come into the market. Third, the U.S. shale oil industry can use hedging to lock in profits and ride out price swings.

Q: What are the consequences of OPEC not reaching a deal?

A: The high prices in the 1980s - partly supported by OPEC’s cuts - led to developments of new ‘unconventional’ oil from the Gulf of Mexico, North Sea and Alaska. This is very similar to recent developments where high oil prices led to shale in the U.S., oil sands in Canada and biofuels. Similar outcomes have taken place in other commodity markets such as tin, natural rubber and coffee.

Q: Which countries do you see agreeing to give up most?

A: The two oil producers that matter the most are Saudi Arabia and Russia, which is not part of OPEC. Unless those two countries agree to a decent cut, we don’t see much of an effect.

Writing by Chris Kaufman, editing by G Crosse

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