OPEC and President Trump: His Tweets Don’t Matter

Photo by Tech. Sgt. Rhonda MoraskiPhoto by Tech. Sgt. Rhonda Moraski

by Thomas W. Lippman

There are several possible explanations for the tweet President Trump sent out on Wednesday criticizing the Organization of Petroleum Exporting Countries (OPEC) for the continuing rise in the price of oil.

One is that he simply didn’t put much thought into it—he simply fired off the first thing that came into his head after he saw a TV news item about an upcoming OPEC meeting.

Another is that it was easy, cheap demagoguery: Voters don’t like expensive gasoline, so show them that you’re on their side.

Yet another is that the president really is that ignorant about the oil market. OPEC can move the price one way or another, but it has been years since the producers’ cartel was fully in control.

“Oil prices are too high, OPEC is at it again. Not good!” the president tweeted on Wednesday morning. He made similar comments in April.

He didn’t say what “too high” was or for whom. He may think his constituents are being squeezed by higher prices for gasoline, but by some measures the prices are in fact quite low, especially when compared with other liquid commodities.

Milk is probably the best example. According to the American Automobile Association, the national average price for gasoline on Wednesday was $2.909 per gallon. The price of milk in supermarkets was almost $4 per gallon, higher by about one third. Given the relative costs of finding, producing, refining, shipping, and insuring petroleum products and dairy products, that is absurd. But the president has been silent about the price of milk, except to criticize Canada’s dairy policies.

Moreover, every state legislature in the United States has the power to reduce the price that consumers pay for gasoline by cutting the tax on it. The lawmakers don’t do it because their states want the money. Why should oil-producing countries take the hit for them?

The bigger picture is that the oil policies of the OPEC member countries are only one factor in determining the global price of oil. The policies of major non-OPEC producers such as Mexico, Russia, Norway, and the United States are another. So is global demand, itself a variable into which fuel prices are just one input. Supply disruptions—from storms, natural disasters, or war—can have a major impact. And so can advances is non-petroleum fuels, such as biodiesel.

OPEC did not engineer the increase in the price of crude oil from below $40 per barrel in 2016 to about $70 this week. Demand surged after the end of the great recession. Another big factor was an agreement between Saudi Arabia, OPEC’s biggest exporter, and non-OPEC Russia to limit production to drive prices up because they wanted higher revenue.

OPEC members are scheduled to meet next week to discuss production levels and quotas, but meanwhile Russia and Saudi Arabia are apparently again ready to make their own arrangements. Crown Prince Mohammed bin Salman, who is in Russia to watch the kingdom’s national soccer team play the Russians in the World Cup, is scheduled to discuss oil policy in a meeting with President Vladimir Putin, according to Bloomberg News.

An industry newsletter reported this week that “despite opposition from some OPEC members, the two most important producers, Saudi Arabia and Russia, are already signaling their intent to raise output,” as Saudi Arabia did in May.

Even if most of OPEC’s 14 members were inclined to boost their output in an effort to hold down the price, it is highly unlikely that troubled or economically pressed major producers such as Venezuela, Iraq, or Iran would be inclined to go along. They don’t want to hold down the price—they need all the revenue they can get, and have to no reason to restrain the price so that Americans can save money refueling their SUVs.

Several recent market analyses have predicted sharp cuts in Venezuelan output as that country continues to unravel, putting upward pressure on the global price as supplies are squeezed. Only Saudi Arabia has the spare capacity to make up for a sharp drop in output from any other country. The Saudis have signaled their intention to shed their traditional role as “swing producer,” varying their output to stabilize the market. But they have also said many times that they do not want prices to rise so high that they damage the global economy or stimulate investment in competing alternative fuels.

If Trump had read OPEC’s Monthly Market Report, which was published the same day he sent his tweet, he would have seen that the organization itself is conscious of uncertainties beyond its control.

“Recent developments in the oil market have led to pronounced uncertainty about the second half of the year,” the report said. Demand for oil from OPEC states is likely to rise slightly, but “considerable uncertainty as to world oil demand and non-OPEC supply prevails.”

Nothing the oil ministers who gather next week can do, especially given their internal divisions, is likely to eliminate that uncertainty, regardless of what Trump tweets.

Print Friendly, PDF & Email
avatar

Thomas Lippman

Thomas W. Lippman is a Washington-based author and journalist who has written about Middle Eastern affairs and American foreign policy for more than four decades, specializing in Saudi Arabian affairs, U.S.- Saudi relations, and relations between the West and Islam. He is a former Middle East bureau chief of the Washington Post, and also served as that newspaper's oil and energy reporter. Throughout the 1990s, he covered foreign policy and national security for the Post, traveling frequently to Saudi Arabia and other countries in the Middle East. In 2003 he was the principal writer on the war in Iraq for Washingtonpost.com. Prior to his work in the Middle East, he covered the Vietnam war as the Washington Post's bureau chief in Saigon. Lippman has authored seven books about the Middle East and U.S. foreign policy. He is also an adjunct scholar at the Middle East Institute in Washington, where he serves as the principal media contact on Saudi Arabia and U.S. – Saudi relations.

5 Comments

  1. His friends in the US oil industry are raking it as usual but he has nothing to say about them!
    Crude oil price: $1.67 per gallon ($70/b or 42 gal)
    Transportation and refining: $0.06 per gal
    Fed tax: $0.184 per gal
    Today average gas price in US: $2.91 per gal
    $2.91 – ($1.67 + $0.18 + $0.06) = $1.00 or about 30% margin!

    The oil refining companies constantly pushing the technology envelope for converting more of their crude oil to gasoline which affords higher prices ( specially during seasonal travels) to increase their profit margins! So he’s BS ing again!

  2. Very much of what Mr T tweets is playing to the gallery – the peanut gallery at that. And it works. Give the man his due, as a showman he knows his audience intimately.Much of what he says is of the same order of grumbling and moaning as one hears around any water cooler at work. Again, ‘Just one of the guys.’ Running an empire as standup improv! Brilliant. Perverse, But brilliant. Nero and Caligula would have admired his performance. And he doesn’t even have a Praetorian guard to worry about – so far as I know. Enjoy the show. We’ve paid admission,- and it’s steep!

  3. Once Saudi Arabia increases its production, the Ayatollah regime will not be able to sell its oil, via conventional means. That lower revenue will prevent the wretched Ayatollahs from getting weapons to subjugate Iranians. In fact the Ayatollahs may dump oil in the black market and create a fall in oil prices.

  4. Saudi government has been and still is near bankruptcy with very little cash reserve! This was proven to be true when MbS accused his opponents of corruption then jailed them in hotels and extorted $billions from them in order to stabilize Saudi cash reserves! MbS has also made a commitment to Putin to hold the crude oil price around $70/b or slightly higher as long as the market demand for crude oil is increasing. Therefore Saudis will NOT agree to any increasing of oil production in the upcoming OPEC meeting. At least not until next fall when the demands for gasoline tend to begin to decrease!

  5. Ali Mostofi doesn’t know that sanctions actually helped Iran diversify away from oil, and helped Iran weather the downturn of oil prices that almost drove the Saudis bankrupt. but then again the like of Ali Mostofi have been saying the same thing for 39 years now

All comments are moderated. Comments with links will not be published. Read our Comment Policy page for further information.