Trump is wrong about ‘high’ oil price

Pricing is affected by many factors, and the global market is far more uncertain these past 16 months

United States President Donald Trump has tweeted his way into something of a commodity conundrum by commenting on what he believes is a price that is too high for oil. The president pointedly thumbed that with record oil production levels and full tankers at sea, Opec was somehow to blame. As usual, it’s hard to figure out what motivated this Twitter snit from the president, but it marked the first time that he has made any reference to the Organisation of Petroleum Exporting Countries since coming to the White House 16 months ago. Let’s set the record straight here — and not in the limited confines of Twitter character counts. Indeed, oil prices are at a three-year high, hovering slightly above the $70 (Dh256.9) per barrel threshold, and they have been gradually rising since both Opec and non-Opec alike cut production supplies in January 2017 to manage a glut in the marketplace. Trump needs to be aware that the price of oil is not determined by supplies alone, and that a range of factors influence its rise – and fall. One factor is climate, and both North America and Europe have experienced colder and more-prolonged winters than is normal. Another key aspect in the price of the commodity are geopolitical concerns. Let’s be kind and suggest that in the past 16 months, a new dimension of global uncertainty has entered the price equation, and the stability that was factored into commodity prices before has been, well, made more turbulent by erratic policy changes, chaos – and tweets. Talk of trade wars and out-again, in-again musings on trade deals also affect commodity prices. Commodity markets hate uncertainty, and uncertainty is more commonplace too.

Oil prices rise too on regional factors at play across the Middle East, and the recent joint strike by the US, the United Kingdom and France on chemical-weapons’ facilities in Syria caused short-term concerns in the market. And so too does musing about pulling US military advisers out of Syria as did, respectfully, off-the-cuff comments that the US should have taken all of Iraq’s oil following its invasion then in March 2003; or causing undue chaos by recognising occupied Jerusalem as Israel’s capital. Every event affects pricing.

But in his misguided and mistaken tweets, Trump has also ignored the obvious truth that as it stands right now, the nation that produces most oil is the United States. Opec members are fully compliant with agreed production targets. Those in his own backyard are not.