President Trump has tweeted three times that he wants low oil prices, prodding the Organization of the Petroleum Exporting Countries to simply open its spigots and ramp up exports.
At the same time, Trump wants countries around the world to stop buying Iranian crude oil — a key part of his decision to withdraw from the Iran nuclear deal and reimpose sanctions.
The two urges don’t mix, however.
OPEC members in coordination with Russia just reached an agreement to pump an additional 1 million barrels a day onto world markets. Meanwhile, stopping the sale of Iranian oil would take 2.4 million barrels a day off world markets.
Trump believes OPEC can do more by drawing on its spare — or idle — production capacity. But International Energy Agency figures and Saudi Arabian officials have indicated that there isn’t enough spare capacity to offset a complete cutoff of Iranian oil sales. And that realization has helped drive up prices over the past two weeks as countries and traders worry about the security of future supplies.
On Independence Day, Trump resumed his Twitter assault on OPEC and high oil prices. “The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s.” He added, “This must be a two way street. REDUCE PRICING NOW!”
Antoine Halff, formerly a chief oil market analyst at the International Energy Agency and now senior fellow at Columbia University, said that Trump made three errors in his tweet: OPEC can influence market prices but is not a monopoly. OPEC is doing something to help with its recent agreement to raise production but may soon use up its entire spare capacity. And then, Halff added, Trump assumed “that the increase in prices has nothing to do with the United States when the price increase is to some degree self-inflicted since it is driven by concern about the removal of Iranian barrels from the market.”
Saudi Arabia, the world’s biggest exporter with the largest amount of spare capacity, has given only a muted response to Trump. It had urged Trump to withdraw from the deal with its rival, Iran. Without specifying a number, the official press agency said the kingdom would do what is necessary to balance oil prices.
Iran, however, has responded with threats. An Iranian Revolutionary Guard commander warned that Iran might blockade the narrow, strategic Strait of Hormuz if Trump stopped oil exports, a move some considered unlikely because Iran’s own imports pass through the strait.
Iran’s representative to OPEC, Hossein Kazempour Ardebili, told Reuters that Trump was responsible. “The responsibility of paying unnecessary prices for oil by all consumers of the whole world, especially in U.S. gas stations, is solely upon your (Trump’s) shoulders and the price of over $100 per barrel is yet to come,” he said.
Kazempour Ardebili said Trump was trying to fuel tensions between Iran and Saudi Arabia in advance of a meeting between Iran and the five remaining signatories to a deal restricting Iran’s nuclear program. The United States under President Barack Obama led negotiations for that deal, but Trump has withdrawn from the agreement and is reimposing sanctions on those doing business with Iran. Although the sanctions don’t take full effect until November, expectations have already added uncertainty to markets.
Iran exported more than 2.4 million barrels a day in May, according to the IEA. That represents about 2.5 percent of global oil consumption, but crude oil prices have always been sensitive to pressure on a small portion of the overall market because consumers have trouble doing without gasoline or diesel.
Moreover, as the world’s economies recover some of their lost vitality, demand for motor fuel has also increased, driving up prices.
Gasoline prices averaged $2.87 a gallon nationwide, up 28 percent from a year ago, according to AAA. The price of diesel fuel used largely by truckers was $3.17 a gallon, up 30 percent from a year ago, AAA said. High fuel prices drain money from consumers’ pockets, hurting economic growth while adding to inflation.
Crude oil prices in recent days have hit their highest levels since late 2014. In late morning trading Thursday, the price of the international benchmark Brent grade of crude oil was little changed at $77.85 a barrel. The U.S. benchmark West Texas Intermediate was $73.22 a barrel, down 1.24 percent.
The price of gasoline is a hardy perennial in presidential campaigns. Jimmy Carter struggled with high gas prices, which had doubled since the Iranian revolution. And during the 2008 presidential race, Barack Obama said in a campaign speech that “here in Ohio, you’re paying nearly $3.70 a gallon for gas — two-and-a-half times what it cost when President Bush took office.”
Trump might have good reason to worry about gasoline prices being used against him and his fellow Republicans. After all, he did the same in 2012 when the average gasoline price climbed over $4 a gallon. “Gas prices are at crazy levels — fire Obama!” he tweeted on Oct. 12, 2012.
Unlike the situations with other presidents, however, Trump is directly linked to the current increases because of his push to block purchases of Iranian oil.
That wasn’t the case when Obama negotiated with Iran. He persuaded nations to curtail purchases of Iranian oil to pressure Iran to agree to limits on its nuclear program. Obama accepted yearly reductions of 20 percent as “significant” enough to ramp up pressure on Iran. Moreover, Obama was able to do this without increasing oil prices because a surge in U.S. shale-oil drilling more than offset lost Iranian exports.
Trump administration officials have been visiting other nations to press them to halt oil purchases altogether. And while U.S. shale-oil production continues to rise, global demand for oil remains strong.
Trump’s pressure on OPEC comes just as key oil exporters were increasing output, which has been curtailed since 2016 to boost prices. Now that prices have rebounded from a low of $30 a barrel in January 2016 to about $75, OPEC and other exporters (led by Russia) have agreed to slowly increase exports by what will effectively be 700,000 barrels a day now, with an additional half-million barrels later in the year as sanctions on Iran take effect.
Trump in an earlier tweet and in an interview on Fox News last Sunday said he wanted oil exporters to provide an additional 2 million barrels a day of production. But oil experts say that OPEC is already close to its maximum capacity. The IEA, in its June oil market report, estimated that OPEC had only 1.14 million barrels a day of spare capacity in the near term.
Experts say that OPEC could expand its capacity, but that might happen only when prices are high enough to justify the extra cost of development.
“Asking OPEC for oil is not so unusual. It’s almost an American tradition,” Halff said. “Every president before Trump has done it and it tends to happen in an election year.”
However, he added, “It’s at the same time a request for oil and an accusation and a berating, which makes one wonder what is the real message. Is it about asking for oil or about displaying the appearance of toughness for electoral purposes for domestic audiences?”