Donald Trump is furious about oil prices again and this time around, OPEC doesn’t care.
“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!”, the President shouted on Thursday.
He went on to warn America’s Mideast allies that he’ll “remember” their perceived recalcitrance and, in an effort to drive the point home, he instructed OPEC to “get prices down now!”
This is nothing new. Trump began publicly criticizing OPEC back in April, when he accused the cartel of being “at it again“. That was an absurd contention, because inherent in the term “cartel” is the idea of price manipulation. It makes no sense to accuse a cartel of being “at it again” when it comes to manipulating prices because what else would a cartel be doing?
It’s not hard to understand why Trump wants lower oil prices. The higher crude goes, the higher will be prices at the pump. Higher gas prices could potentially eat into the gains that are assumed to accrue to American consumers from the tax cuts.
The problem for Trump is that his “tough on Iran” foreign policy works at cross purposes with his efforts to bring down oil prices. The push and pull between, on one hand, renewed sanctions on Tehran and, on the other, the necessity of keeping prices at the pump low, is one of the more glaring examples of the administration’s policies tripping over one another.
The President isn’t totally oblivious to the fact that pulling the U.S. out of the Iran nuclear deal served to embed still more geopolitical risk premium in crude prices. Indeed, the timing of his concerted effort to compel an OPEC production hike clearly indicated that he understands the State Department’s demands that allies cut imports of Iranian crude to zero by November has the potential to push prices materially higher.
But what he doesn’t seem to grasp (or at least not entirely), is that he’s reached the point of diminishing returns with these tweets. He was successful in setting the agenda for the June OPEC meeting and ultimately he was successful in compelling the cartel (along with Russia) to support a production hike in the back half of the year. That was no small feat, especially considering how irritated Iran was at the idea that OPEC was beholden to Trump’s Twitter account.
When that wasn’t enough to offset the threat of lost Iranian barrels, he pushed the envelope further, taking to Twitter in late June to (literally) announce that he had called King Salman on the phone and asked for a 2 million b/d unilateral increase from the Kingdom, a move which, if implemented, would amount to Riyadh effectively going rogue.
Since then, Trump has continued to apply pressure on Iran.
“With nearly 50 days to go before new U.S. oil sanctions against Iran enter into force, President Trump has already managed to crush the country’s petroleum exports, dealing severe economic damage to Tehran”, Bloomberg wrote on Tuesday, adding that “Iranian oil exports have plunged about 35 percent since April.”
Recently, oil has of course risen anew and apparently at wit’s end, Trump tried one more time to influence OPEC ahead of this weekend’s ministerial meeting in Algiers. Here’s an annotated history of one man’s crusade against an inanimate commodity:
The President isn’t likely to be pleased with the outcome of the meeting. Here’s what Saudi Energy Minister Khalid Al-Falih told reporters following the pow wow on Sunday:
Even without reaching 100%, we have seen inventory levels start building a little bit. We believe the market is well-supplied over the last 3 months since June, and it’s also reflected by the fact that we are not seeing a lot of demand. [We] didn’t increase output because all our customers are receiving all the barrels they want, and they are not asking for any more. I think October will be higher than September in terms of demand, and that will be met 100%, and then we will see in November and December. The market is reasonably steady, and I think we should just be dynamic and responsive and responsible in our acts.
The bit about “100% compliance” is just a reference to what, in August, was over-compliance with cuts or, more simply, less production than promised in June, when the cartel effectively bowed to pressure from Trump.
For his part, Russian Energy Minister Alexander Novak reiterated that Russia is still committed to the June decision to get compliance down to 100%, but one of the persistent issues here is what it would entail for spare capacity were the Saudis and Russia to ramp things up. That is, it’s not entirely clear whether it makes sense to effectively reduce OPEC+’s ability to respond to future supply disruptions just because Donald Trump wants lower gas prices.
Ironically, it’s possible that Trump’s trade war could end up hurting his own cause when it comes to compelling the Saudis to ramp up production if the trade frictions end up denting global growth. Here’s another quote from Al-Falih:
We, Saudi Arabia, have not seen demand for an additional barrel we didn’t produce; we have topped our storage to the maximum because the demand hasn’t materialized.
So, for the time being, Trump will be reduced to the old man shouting at clouds on Twitter. Clearly, his tweets are not going to be enough when it comes to forcing Riyadh to pretend like there’s an emergency when in fact there isn’t one.
I suppose it’s time for another monarch-to-monarch phone chat between Trump and King Salman.