Higher oil prices are causing a rift between Trump and the oil cartel- OPEC. Both OPEC and Non-OPEC producers are concerned about one thing, put a leash on widlcatters
Crude and Brent oil prices are flirting with multi-year highs. Year to date, Crude oil is up whopping 23.47% and Brent has gained nearly 25.55%. At the time of writing this article, crude oil was trading at $72.10and Brent was trading at $80.40. What instigated this move is the question that many are asking because surely Trump doesn’t like higher oil prices and he has tweeted several times about this.
The fact is that Trump’s tweet about lower oil prices has little to no impact on the prices. Last week, Trump used his favourite platform-twitter in order to communicate his frustration about Brent price being near $80. However, his tweet fell on deaf ears because there is literally no impact on the price today.
Even the biggest oil cartel, OPEC didn’t pay much attention to Donald Trump’s rants about higher oil prices during their meeting which took place over the weekend. But before we sweep further into the OPEC meeting and its outcome, it is worth looking at Trump’s tweets about lower oil prices and its impact on the oil prices over the last five months. Since, his first tweet (“Oil prices are artificially Very high! No good and will not be accepted”) back in April this year, oil prices have gained nearly 12.81%. Thanks to plunging oil output from Venezuela and sanctions on Iran, both have contributed to higher oil prices.
There is clear US political pressure on the countries which are importing oil from Iran. Since the sanctions have been announced, South Korea has dropped its oil import to nearly zero from Iran but on the other hand, countries like Turkey and Japan have reduced very little oil import from Iran. Nonetheless, there is a huge pressure on all US allies to cut their oil supplies from Iran and the fact is that countries are complying. The only difference is that in some places you are seeing much larger cuts than the other.
Going back to the OPEC meeting, the OPEC ministers met in Algeria on Sunday to think a way forward about the ongoing challenges for the cartel. Their response to Trump’s tweet was simple; no additional supply boost. This means that they didn’t pay any attention to what Trump has said and not willing to increase the supply. Generally speaking, higher oil supply should push the price lower. Saudi Energy Minister Khalid al-Falih response was the most intriguing who said: “I do not influence prices”. Clearly, the biggest oil producer of the OPEC has no interest to disturb the oil equilibrium now. Non-OPEC oil producer, Russia also echoed a similar message and made it clear that the country has no interest to play with the oil equation now.
The cartel’s only interest is to put a leash on the wildcatters from Texas to North Dakota. They have added major threats for the cartel. Since 2010, the three major shale basins have added nearly 5.05 million barrels a day, something which OPEC needs to keep a close eye on. Of course, it isn’t in cartel’s favour to keep the prices higher because this will simply attract more oil producers. But the matter of the fact is that both OPEC and Non- OPEC producers, particularly Saudi Arabia and Russia need to have the oil prices are current level in order to keep the growth going and maintain their exuberant expenses.
