President Trump on Thursday again urged Middle East oil producers to unleash their giant petroleum reserves and drive down the price of oil. But this time, he added a new threat by drawing the U.S.-Mideast military umbrella into the equation.
“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!” Trump tweeted.
The United States maintains a large military presence in the region, including naval forces that keep the sea lanes open for oil tankers. The United States relies on those tankers for its oil imports.
Analysts said Trump’s tweet is aimed directly at this week’s meeting of the Organization of the Petroleum Exporting Countries, where the pressure will be on Saudi Arabia, the United Arab Emirates and Kuwait to use their spare capacity to raise production.
”The world oil situation is stable, ” said Bob Tippee, editor of Oil & Gas Journal. “The price is high enough to sustain production but not high enough to hurt consumers. But supply is about to take a 1.5-million barrel a day hit when the Iranian sanctions kick in. The balance will get out of whack as the production decline hits.”
Crude oil prices have been rising over the past year as a result of OPEC’s strategy to tighten supply. Prices hit a two-month high Wednesday as Brent crude, the world’s most closely followed gauge, rose above $79 a barrel. This has helped push prices higher at the pump. Gas prices have risen to their highest levels in four years — hitting about $2.85 a gallon over Labor Day weekend — and are reducing Americans’ spendable cash as voters head to the polls for the November election.
The president has tweeted several times that he wants lower oil prices, prodding OPEC to simply open its spigots. At the same time, Trump will reimpose sanctions on Iran later this year as he withdraws the United States from the Iran nuclear deal, potentially removing a significant oil supplier from the market.
The oil market is vast constellation of producers and consumers across the planet, linked by a transportation network of pipelines, trucks, trains and giant crude tankers. Any disruption, no matter how small, can send a ripple through prices that is felt all the way to the gas pump down the street or the oil that keeps the northeastern United States warm during the winter. Right now, there isn’t much room for error on either side. World oil supply and demand are tightly in sync at about 100 million barrels a day produced and consumed.
Oil prices languished between $40 and $60 for much of 2016 and 2017 before supply tightened after Saudi Arabia, OPEC’s de-facto leader, and non-OPEC producer Russia agreed in 2016 to cut production to boost prices. The strategy succeeded in reducing world oil inventories. Oil prices rose from below $50 in 2017 to more than $70 a barrel today. Around $80 a barrel is considered the optimal price that allows ample profit without encouraging people to use less.
But the Saudi and Russian strategy may have worked too well.
At the same time that the two nations put the screws on supply, several other big producers — including Nigeria, Venezuela, Canada, the North Sea and Libya — have seen production decline precipitously. “There is simply not enough readily available spare capacity in the world to replace the loss of all Iranian barrels, coupled with the potential for further reductions in Libya, Nigeria and elsewhere,” according to a report by the Center for Strategic and International Studies.
Frank Verrastro, senior vice president at the center, said, “The bottom line is we don’t have enough spare capacity in the world to make up for the loss of Iran and other troubled spots.".
The International Energy Agency estimates that the world has 3 million barrels a day in spare capacity. But Verrastro thinks there is less than that. Oil prices could rise dramatically, he said, if supply drops much further.
“The president can argue that OPEC deserves the blame, but only partially,” Verrastro said. “The sanctions against Iran are aggravating prices.”
OPEC is meeting in Algiers this week, where members are expected to discuss whether to relax restrictions on how much members can pump.