President Donald Trump thanks Saudi Arabia for the steep drop in oil prices.
WASHINGTON — The swift and steep drop in oil prices has been the talk of Wall Street for several weeks and is good news for 30 million American travelers as they head into a busy Thanksgiving holiday.
But the the dramatic decline cuts both ways, with several energy firms big and small seeing their stock prices fall even as President Trump cheers the lowest oil prices in more than a year.
On Wednesday morning, the president tweeted:
“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!”
“He’s a piece of work,” said Nancy Tengler, chief investment officer at Heartland Financial. “It’s all supply, that is the issue. The U.S. is producing 11.5 million barrels a day. We are largest producer in the world. There’s just more supply than demand currently. If Saudi Arabia keeps pumping and exemptions to Iran stay in place, prices are going to stay low.”
Several small oil production companies have been shellacked by the commodity’s price decline, with share prices dropping nearly 50 percent in recent days.
Benchmark Brent Crude and West Texas Intermediate both saw big price drops Tuesday. West Texas Intermediate fell 6.6 percent to close at $53.43. Benchmark Brent fell 6.4 percent to close at $62.53.
Both are down more than 20 percent from their highs in early October.
The magic number is $50 per barrel.
“We are clearly in the danger zone,” said Frank Verrastro, a global energy expert at the Center for Strategic and International Studies. “For U.S. producers, sustained prices below $50 would undoubtedly be problematic for all but the most efficient operators.”
The U.S. giants, Chevron and Exxon, saw their shares tumble nearly 3 percent Tuesday. Both are down 10 percent from its 52-week high.
The current surplus is largely attributed to a miscalculation between demand and output by major producers, including Iran. A strong dollar is also weighing on oil prices because it makes oil more expensive for much of the world. Oil prices tend to fall as a result.
Oil is a boom-and-bust business. The price drops when supply exceeds demand. Producers pull back and slow production as a result of the price squeeze. When demand exceeds supply, producers start drilling again and the cycle picks up again.
The United States is the world’s biggest oil consumer at about 21 million barrels a day of the 100 million barrels produced daily worldwide. It is also a top oil producer, thanks to the shale oil renaissance over the past half-decade.
Oil and gas represent about 7.6 percent of U.S. GDP. Low prices have a salutary effect across the economy, including moderating the rate of inflation. By helping to keep inflation low, low oil prices can stem the rise of interest rates, including for mortgages and auto purchases.
Oil prices dove quickly Tuesday on Trump’s endorsement of strong ties to oil swing producer Saudi Arabia, the defacto OPEC leader currently under fire for the murder of a dissident journalist in October.
Saudi Arabia’s willingness to maintain production is crucial to keeping oil prices low and keeping the president happy. The oil giant was contemplating a cut in production at the December OPEC and non-OPEC meeting, which could raise prices.
Trump has repeatedly tried to insert himself into key economic decisions made by others, particularly incensed about interest rates and oil prices. He believes low interest rates and low oil prices will help boost the economy, though he often dismisses concerns that White House interference in these decisions could distort markets.
For months, Trump has tried to pressure the Organization of the Petroleum Exporting Countries to lower oil prices, even jawboning the coalition on Twitter.
“Looks like OPEC is at it again,” he wrote. “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!”
Trump has imposed severe economic sanctions against Iran, which limit the ability of other countries to buy Iran’s oil. The move was expected to drive up oil prices, which would make it more costly for consumers and businesses, but oil prices have stayed low in recent months.
In a move that limited the impact of the Iran sanctions on oil prices, however, the White House gave temporary waivers to eight countries that allowed them to keep buying Iranian petroleum, at least for a little while.
This week, Trump began publicly praising Saudi Arabia for helping keep the oil prices low. His comments came as part of a strident defense he has made regarding his relationship with Saudi Arabia, dismissing assessments from U.S. intelligence agencies that top Saudi leaders were involved in the killing of a Washington Post columnist.