Common sense dictates that Donald Trump would be aghast to see oil prices blow out enough to risk effectively negating the economic benefits that are supposed to accrue to U.S. consumers from the GOP tax cuts.
Indeed, he explicitly suggested late last month that he might try and bully OPEC around (an amusingly prospect, considering one doesn’t exactly “bully” a cartel) in the following characteristically absurd tweet:
Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!
— Donald J. Trump (@realDonaldTrump) April 20, 2018
Here’s what I said on Thursday in a post over at Dealbreaker documenting BofAML’s suggestion that oil prices could be headed for $100:
You’ve got to think Trump is going to be pretty damn pissed off if a surge in oil prices ends up undermining the “tremendous, bigly, big league” economic renaissance he thinks he’s ushered in for America. To be clear, there is absolutely nothing “tremendously” anomalous about the quarterly GDP numbers we’ve gotten under Trump and the unemployment rate was already “tremendously” low when he took office.
But in that “very good brain” of his (resting as it does beneath that rusty Brillo pad he wears on his head), we’re witnessing the most spectacular stretch of economic growth the world has ever seen, and in the event surging oil prices imperil that, he’s exceedingly unlikely to look in the mirror when it comes to finding fault.
Rather, what he’ll do is blame OPEC.
Right. And the signs that higher gas prices might be starting to erode sentiment are already showing up. Hell, it was just yesterday when we learned that consumer comfort fell to its lowest level since February, a possible reflection of the “uncomfortable” prospect of paying more at the pump.
For their part, the Saudis have said they’ll step in to stabilize the market in the event any missing Iranian barrels end up driving prices too high. The following is from state-run SPA, citing the energy ministry:
The Kingdom of Saudi Arabia is committed to supporting the stability of oil markets after the U.S. decision to withdraw from Iran nuclear deal. The kingdom will work with major producers and consumers within and outside OPEC to curb the effects of any supply shortages.
But you’d be forgiven for casting a bit of a wary eye at that. Riyadh reportedly wants $80/bbl at least and possibly even $100, in order to, among other things, drive up the valuation of the Aramco IPO. Needless to say, that risks emboldening previously uneconomic U.S. supply which in turn imperils market share, but that might be a gamble to Kingdom is willing to take. After all, as I noted in the same Dealbreaker post linked above, there’s only so much money you can extort from your relatives on the way to replenishing SAMA reserves.
Well speaking of previously uneconomic U.S. production and the Saudis, Iran’s Oil Minister, Bijan Namdar Zanganeh said some bizarre shit on Thursday. Specifically, he accused Trump of conspiring with Riyadh to drive up crude prices in order to benefit U.S. shale.
“[Trump] is using shenanigans to raise oil prices to make shale production economic,” Zanganeh posited, before saying that “Trump has cut a deal behind the scenes with some OPEC members to keep production down and help boost prices.”
Higher prices, Zanganeh went on to note, “boost the U.S. economy, employment and the tax base.”
Ok. So there’s another “theory” about what’s going on inside Trump’s “very good brain”. I’m not sure I’m buying it, especially considering it would require that Saudi Arabia essentially agree to bolster the fortunes of U.S. producers that have been the thorn in Riyadh’s side for years, but hell, I guess you never know.
What I would say is that while I don’t want to speak to “the economy, employment and the tax base”, if the measure of “success” for these alleged “shenanigans” is the performance of energy shares, Trump needs to work on improving the efficiency of the transmission mechanism.