Who to blame for higher oil prices?
U.S. President Donald Trump has ramped up his Twitter assault on the Organization of the Petroleum Exporting Countries and high oil prices, but experts say the president’s own push to cut off Iran’s oil sales is the biggest reason oil prices have gone up recently.
“The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything they are driving prices higher as the United States defends many of their members for very little $’s.” Trump wrote on Twitter on Independence Day. He added, “This must be a two way street. REDUCE PRICING
NOW!”
Iran’s representative to OPEC, Hossein Kazempour Ardebili, replied on Thursday by blaming Trump. “Your tweets have increased the prices by at least $10 (all figures US). Please stop this method,” he said, according to the oil ministry news agency.
Kazempour Ardebili said Trump was trying to fuel tensions between Iran and Saudi Arabia in advance of a meeting between Iran and the five remaining signatories of a deal restricting Iran’s nuclear program. The United States under president Barack Obama led negotiations of that deal, but Trump has withdrawn from the agreement and is reimposing sanctions on those doing business with Iran. Although the sanctions don’t take full effect until November, expectations have already added uncertainty to markets.
Antoine Halff, formerly a chief oil market analyst at the International Energy Agency and now senior fellow at Columbia University, said that Trump made three errors in his tweet: OPEC can influence market prices but is not a monopoly. OPEC is doing something to help with its recent agreement to raise production by nearly the entire amount of its spare — or idle — capacity. And then, Halff added, Trump assumed “that the increase in prices has nothing to do with the United States when the price increase is to some degree selfinflicted since it is driven by concern about the removal of Iranian barrels from the market.”
Iran exported more than 2.4 million barrels a day in May, according to the International Energy Agency. That represents about 2.5 per cent of the global oil consumption, but crude oil prices have always been sensitive to pressure on a small portion of the overall market because consumers have trouble doing without gasoline or diesel.
Moreover, as the world’s economies recover some of their lost vitality, demand for motor fuel has also increased, driving up prices.
Gasoline prices averaged $2.87 a gallon nationwide, up 28 per cent from a year ago, according to AAA. The price of diesel fuel used largely by truckers was
$3.17 a gallon, up 30 per cent from a year ago, AAA said. High fuel prices drain money from consumers’ pockets, hurting economic growth while adding to inflation.
Crude oil prices in recent days have hit their highest levels since late 2014. In late morning trading, the price of the international benchmark Brent grade of crude oil was little changed at $77.85 a barrel. The U.S. benchmark West Texas Intermediate was $73.22 a barrel, down 1.24 per cent.
The price of gasoline is a hardy perennial in presidential campaigns. Jimmy Carter struggled with high gas prices, which had doubled since the Iranian revolution. And during the 2008 presidential race, Barack Obama said in a campaign speech that “here in Ohio, you’re paying nearly $3.70 a gallon for gas — two-anda-half times what it cost when President Bush took office.”
Trump might have good reason to worry about gasoline prices being used against him and his fellow Republicans. After all, he did the same in 2012 when the average gasoline price climbed over $4 a gallon.
“Gas prices are at crazy levels — fire Obama!” he tweeted on Oct. 12, 2012.
Unlike the situations with other presidents, however, Trump is directly linked to the current increases because of his push to block purchases of Iranian oil.
That wasn’t the case when Obama negotiated with Iran. He persuaded nations to curtail purchases of Iranian oil to pressure Iran to agree to limits on its nuclear program. Obama accepted yearly reductions of 20 per cent as “significant” enough to ramp up pressure on Iran. Moreover, Obama was able to do this without increasing oil prices because a surge in U.S. shale oil drilling more than offset lost Iranian exports.
Trump administration officials have been visiting other nations to press them to halt oil purchases altogether. And while U.S. shale oil production continues to rise, global demand for oil remains strong.
Trump’s pressure on OPEC comes just as key oil exporters were boosting output, which has been curtailed since 2016 to boost prices. Now that prices have rebounded from a low of $30 a barrel in January 2016 to approximately $75, OPEC and other exporters (led by Russia) have agreed to slowly increase exports by what will effectively be 700,000 barrels a day now, with another half million barrels later in the year as sanctions on Iran take effect.
Trump in an earlier tweet and in an interview on Fox News last Sunday said he wanted oil exporters to provide an additional 2 million barrels a day of production. But oil experts say that OPEC is already close to its maximum capacity. The IEA, in its June oil market report, estimated that OPEC had only 1.14 million barrels a day of spare capacity in the near term.